ORANGE COUNTY, CA—Q1 was a fast and furious quarter for the national industrial market, but locally speaking, Orange County holds the lead as the market with the lowest vacancy rate in the country. According to a report from Cushman & Wakefield, the county finished the quarter with 3.9% industrial vacancy, an annual change of -0.8%, followed by other California markets including Greater Los Angeles at 4.3%, Oakland at 4.5% and the San Francisco Peninsula (tied with Denver) at 4.7%.

John Morris, leader of industrial services for the Americas at Cushman & Wakefield, tells GlobeSt.com that the coastal markets are drawing industrial occupancy as manufacturers adopt a “get local” attitude about where they locate their production, warehouse and distribution facilities. Other markets that had strong occupancy in Q1 include Lakeland, FL; St. Petersburg/Clearwater, FL; Philadelphia; Houston; and Tampa.

“It's very exciting,” Morris tells GlobeSt.com about the Orange County ranking. “We all know about e-commerce and online fulfilment of orders, and now the service level of expectation from consumers is rising. Orange County is clearly a big market with a lot of people, and it's also a big consumption market.”

Morris adds that a lot of GDP comes out of middle-income and upper-middle-income areas of major markets in the coastal areas of this country—markets like Orange County, San Francisco and Seattle—and these markets drive technology faster and adopt consumption patterns more quickly. “People want things the next day or two, so you have to be local and right where the population is. The 'get local' concept is really driving down vacancy in markets like Orange County and Oakland. Those are the kind of markets that have the lowest vacancy rates right now.”

From the supply side, the primary development markets for industrial properties in Southern California have been either the Inland Empire or the infill markets like Santa Fe Springs, which are becoming supply constrained, says Morris. “They still aren't as close to Orange County as you can be. There is development happening in Orange County, but it's limited. The costs of land and construction make it one of the most expensive development markets in the country, so development is limited based on the natural constraints of cost.”

However, Morris adds, as markets like Orange County, Oakland, South Miami and Northern New Jersey begin to embrace the “get local” mentality, the higher costs of developing industrial properties in these markets are being justified, and development will increase. “This type of development will pencil a lot better in the next six months than it has in the last three years.”

As GlobeSt.com reported earlier this month, Voit Real Estate Services revealed that the county posted more than 529,000 square feet of positive net absorption in the industrial sector during Q1.“Overall, the Orange County industrial market has posted over 7.2 million square feet of positive absorption since Q2 of 2010,” said Jerry Holdner, VP of market research for the firm. “We anticipate that net absorption will continue its positive trend in 2014.”

Both industrial vacancy and availability continued trending downward in Q1, and Holdner said the vacancy rate hasn't been this low since the fourth quarter of 2008. The availability of direct/sublease space being marketed was also down, decreasing nearly 17% from 2013's rate of 7.1%.