OC Industrial Rents Bump 10% in 2017
Following the Inland Empire, Orange County saw the biggest industrial rent increases in the Southern California market, beating L.A. by 3%.
“Lack of available land and lack of inventory is pushing the prices,” David Knowlton, EVP at NAI Capital, tells GlobeSt.com. “The economy is doing well, and all of the people that I speak to—developers mainly—are bullish for the next couple of years, which is as far out as I think any one cares to go. So, the spigot is turned on and there is a lot of money looking for impossible to find land, but we are fully built out. That is really driving the increase in pricing and lease rates. It is really a question of supply and demand. When you have a sub 3% vacancy rate with very little construction in the pipeline, it is forcing pricing up.”
While ecommerce users are driving demand in the Inland Empire market, Knowlton says that there is a more dynamic mix of users in Orange County. Tenants driving the demand range from manufacturing users to warehouse distributors. “It is more dynamic,” Knowlton explains. “The ecommerce players are primarily running along the freeways and in the Inland Empire, which is the only place that you can get anything north of 500,000 square feet. Here, we are seeing a diverse group that is building on itself. We are feeding on ourselves here, and anyone coming inbound to Orange County is coming from the South Bay and Los Angeles County.”
As a result of the rental growth, Orange County industrial rents are similar to Los Angeles, and like Los Angeles, the supply is substantially constrained by a lack of available demand for new development. Knowlton says that there are only a handful of sites available for industrial construction. “I can literally count on one hand the industrial land development opportunities in Orange County, and most of those sites are challenged,” he says. “It is going to take a lot of imagination to develop these properties. I have the only game in town for industrial development, which is 56 acres that is part of the Tustin legacy project. That could potentially be industrial.”
Because of the supply-constrained market, rental rates will likely continue to climb this year. “I expect them to continue to grow at this pace for the foreseeable future, as long as the economy continues to grow, says Knowlton. “Nothing is going to change fundamentally in our market. Land isn’t going to mysteriously appear and the pipeline won’t grow dramatically. Logically, it makes sense to anticipate that the current pressure on pricing will continue for the foreseeable future as long.”