ORANGE COUNTY, CA—Industrial leasing activity and sales in Orange County are at their highest level in seven years, according to John Hollingsworth, executive managing director of Colliers International‘s Greater Los Angeles and Orange County regions. GlobeSt.com recently sat down with Hollingsworth and discussed the findings of the firm’s recently released fourth-quarter industrial market report and what it indicates about the sector in this region.
GlobeSt.com: How would you describe the Orange County industrial market today?
John Hollingsworth: Orange County is reaching a point of maturation where we have a market that is being fueled by increasingly strong demand, but there is a decided lack of developable land. It’s really the old supply-and-demand dynamic with a twist.
When we run out of developable land, we turn to urban-infill development. The twist comes in when we see average asking rental rates begin to rise as owners of vacant properties start to renovate and rehab their existing vacant structures in order to meet new environmental and other regulatory issues. And that’s what is beginning to happen now. We are at such a low vacancy cycle and at such a high activity level that the supply-demand dynamic is beginning to force rents higher.
GlobeSt.com: How low is the vacancy rate for class-A industrial buildings in Orange county now, and how high is the activity level?
Hollingsworth: Orange County’s industrial market posted its highest level of sales and leasing activity in seven years during the final quarter of 2013. That’s a strong finish to an already good year. In those final three months, we had the highest level of leasing and sales activity since the recession, but the vacancy level is a story all by itself.
The current vacancy rate of 4.3% is well below the region’s 10-year historical average for Orange County. What that means is that we just had the best quarter of the past decade—lowest level of historical vacancy and the highest level of leasing and sales activity in seven years. Although there are sound reasons for both, we should remember as well that due to the poor economy during the recession, developers and those who fund their projects were standing back and not building or financing new projects.
GlobeSt.com: What about absorption, or the net occupancy of industrial space, after all is said and done?
Hollingsworth: In the fourth quarter, the region’s industrial market posted just over 600,000 square feet of net absorption, ending the year with a total of 1.7 million square feet of positive net absorption. It was the 13rh quarter in the past 14 quarters where the market has posted a net gain in occupancy. The increase was aided by a few larger transactions completed during the year in the Airport Area and West County submarkets, but again, it’s a positive and welcome sign of improvement.
GlobeSt.com: With such positive results for the year just ended, and especially as we enter 2014, what effect will this have on rental rates?
Hollingsworth: With growing demand in Orange County over the past two years, evidenced by these positive net-absorption numbers, there has been a rise in rental rates. On the one hand, it is encouraging to see vacancies at such a low level for prime industrial space, but peering ahead we see that there could be a shortage of space here that would force industrial users who want to expand here to locate elsewhere if they cannot find the facilities they need.
Stay tuned for more of this interview in which Hollingsworth gives an example of one firm making the choice between staying in Orange County and moving to a different area to expand. He also discusses rental rates and his summation of the industrial market here as a whole.