Strasmann: u201cThere's a tremendous need for high-quality product out there.u201d

NEWPORT BEACH, CA-A strong need for high-quality industrial product is fueling a certain degree of speculative development in Orange County, Kurt Strasmann, senior managing director of the Orange County region for CBRE, tells Pent-up demand from the recession and a recovering economy are creating this need and encouraging developers to build.

“There’s a number of pretty good-sized deals going on,” Strasmann says. “Most of the development is in North Orange County.”

Strasmann says industrial space and development in the South County Airport area is harder to find, but in Northern Orange County some large vacant land sales have taken place in recent years, including the former Boeing site of 80 acres that could potentially be built out to 1.5 million square feet. Owned by ING Clarion Partners LLC and being developed by Panattoni Development Co., the three-phase project is very well located and will yield “very high-quality properties,” says Strasmann.

“There’s a tremendous need for high-quality properties out there,” he adds. “If you take the Inland Empire out of the equation, in Orange County and L.A. only 52% of the product can be classified as class A; the other product is class B and below, which is not as functional.”

Strasmann says the need for industrial buildings that can run more efficiently, with higher clear heights and columns of a certain size and dimension for better racking of product, is clear, and developers are trying to produce them.

Also, selling to end users is becoming a big trend in Orange County. CBRE recently sold to an end user an 85,000-square-foot building that Western Realco had built on spec on a 4-acre site in Brea. The developer is also building a 200,000-square-foot spec building in Northern Orange County and recently closed escrow on 20 acres in Brea that will be built out, according to Strasmann. “These are examples of true spec development deals going down because of the demand in the marketplace for high-quality product.”

Accordingly, sale prices on industrial buildings have been escalating tremendously over the past 12 months and will continue to do so, he adds. “There’s a very limited supply of buildings for sale and lots of people who want to own their own building—Orange County is made up of a lot of entrepreneurial companies owned by individuals, and they like to own their own buildings if they can. This is creating multiple offers on these buildings for sale.”

The typical square-footage range for trades has been 10,000 to 50,000 square feet, but this range is growing, Strasmann says. Some of the active industries are food and beverage, manufacturing, apparel and retail.

Other Southern California markets are experiencing the same phenomenon of a strong industrial sector, but the Inland Empire is a market all its own since the buildings need to be much larger to accommodate corporate America’s manufacturing and warehousing needs, Strasmann says. “The highest percentage of quality product is in the Inland Empire because that’s where the land is.”

As reported earlier this week, industrial space is becoming more and more difficult to find in Orange County. In fact, the region boasts the lowest industrial vacancy rate in the country and has continued to tighten from a year ago, experts report.