Hollingsworth: u201cThere are tenants who don't have two years to find properties for expansion.u201d

ORANGE COUNTY, CA—The lack of available large industrial properties in Orange County is a concern to many users looking to expand in the near future. In this continuation of our interview with John Hollingsworth, executive managing director of Colliers International, GlobeSt.com discusses with him the issues expanding firms face here and what the market looks like as we move further into 2014.

GlobeSt.com: Can you give an example of a firm that was looking to expand in Orange County?

John Hollingsworth: After a two-year search that included prospective locations in and outside of Orange County, Arlon Graphics—best known for its sign, car-wrapping, corporate-imaging and vehicle- and fleet-decoration products—decided to remain in the county after signing a long-term lease agreement for a former Knott’s Berry Farm jam manufacturing facility in Placentia. But the search took two years. They had the luxury of time to work with, but there are others that don’t have that long to find properties for expansion.

GlobeSt.com: What were the obstacles they faced during their search to remain in Orange County?

Hollingsworth: Issues included those related to the environment, access to surface, air and ocean transportation centers, reliable energy sources and proximity to its existing workforce in Orange County, as well as the availability of an additional qualified workforce that it planned to add. Had we not been able to find them space in Orange County, they were ready to move out of Orange County and take their 200 jobs and their expansion plans with them. That’s why we need to be a bit cautious in our outlook. We need more product, and we need it sooner rather than later.

GlobeSt.com: So, the market you’re describing is one of tightening vacancies, a lack of development and basically a still-cautious approach to the economy?

Hollingsworth: That’s what we’re seeing. No one has fully embraced this recovery, but the signs are getting stronger, especially in Orange County and the Inland Empire. But they are two distinct markets. Orange County is much more focused on high-tech companies, medical-device manufacturers and others. There is less a need here for warehousing and distribution facilities than in the IE. But the one thing all the markets in Greater L.A. do have in common, including Orange County, are rising rental rates.

GlobeSt.com: What are the rates now in Orange County?

Hollingsworth: Average asking monthly lease rates have risen almost 10% over the past two years. At the end of the fourth quarter, our study showed an average monthly rental rate of 62 cents per square foot, partly due to the fact that there was not a single industrial building under construction at the end of the fourth quarter in Orange County. Additionally, only one industrial building was completed in the fourth quarter, a 210,000-square-foot structure in Anaheim, which was a speculative development. With less space on the market and vacancy rates continuing to fall for industrial space throughout the entire Southern California region, we expect average asking rates to rise.

GlobeSt.com: With all that said, how would you sum up the Orange County industrial market as we move further into 2014?

Hollingsworth: Along with increasing rental rates and pent-up demand, the prospect of developing industrial properties will improve, but will lag behind market demand. Since there is very little developable land remaining in Orange County, there will be an emphasis on urban-infill projects. With historically low vacancies and projected increases in rental rates, we think any development that does take place will include a good measure of speculative construction.