Orange County Industrial Market Continues Cool-Off This Summer
By Nick Trombola July 16, 2024 6:13 pm
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The industrial real estate market in Orange County, Calif., continued to cool this past quarter, though not quite to the extent of neighboring Los Angeles County and the Inland Empire region.
Orange County’s industrial vacancy rate rose to 2.1 percent in the second quarter of this year, the seventh straight quarter of vacancy increases in the region, according to a new market analysis by CBRE (CBRE). Vacancy hit 0.7 percent in the final quarter of 2022, an all-time low for the county, but has continually risen since.
Meanwhile, the amount of industrial space in the pipeline, at 1.8 million square feet, is down by 66,000 square feet quarter-over-quarter. The 163,000-square-foot Harbor Logistics Center in Anaheim, developed by Kearny Real Estate Company and Dune Real Estate Partners, is among the largest of those projects. Several properties over 100,000 square feet were delivered in the second quarter of this year, though absorption was still net negative at 269,000 square feet.
The news on asking prices is mixed, if modest. The average asking rate was $1.75 per square foot this past quarter, down 1 percent from earlier this year, but up 2.3 percent year-over-year.
In terms of leasing, only four leases over 100,000 square feet were signed in the county this past quarter. One of them — Robinson Pharma’s deal for 197,000 square feet at 1683 Sunflower Avenue in Costa Mesa — was a renewal.
CBRE predicts that the market in Orange County, as in other parts of Southern California, will continue to slow as financial stimulus fades and high interest rates remain in place, per the report. Yet a potential interest rate cut later this year could help inject more life into the industry.
“The prospect of a rate cut this autumn will at least help ease rate volatility, put cap rates on a slight downward trajectory, and generate more common ground between buyers and sellers in coming quarters,” the report said.
Still, the situation in Orange County is not quite as stark as its neighbors lately.
The Inland Empire’s industrial vacancy rate reached 7.2 percent this past year, the highest the region has seen since the early 2010s, according to a quarterly market outlook from NAI Capital. The amount of vacant sublease space, meanwhile, hit a record high of 13.1 million square feet.
Unoccupied space in L.A. County, at 5.3 percent, was not as visible as the Inland Empire’s, though it is the ninth straight quarter of rising rates since the effective end of the COVID-19 pandemic in 2022, per NAI Capital. The county delivered 3.3 million square feet of new space since the start of 2024, an increase of nearly 50 percent compared to the first half of last year, but waning demand has led to 8.3 million square feet of negative absorption so far this year.
Nick Trombola can be reached at NTrombola@commercialobserver.com.
