Orange County’s industrial market is seeing a pandemic-fueled surge. A third quarter report from JLL found that industrial leasing activity in Orange County has hit levels not seen since 2014. During the quarter, there were 57 total totaling more than 2 million square feet. That is a 15% increase over the third quarter average for the past five years.
“During the second quarter, occupies and investors of industrial real estate were very reluctant in executing long forward commitments as there was a lot of unknowns as the pandemic unfolded,” Byron Foss, EVP at JLL, tells GlobeSt.com. “In the third quarter, as the market and economy shifted, pent up demand positively impacted activity in the market. We saw companies move forward with their real estate decisions that supported their growth and business plans to support the new economy.”
The increase in demand and leasing activity, however, wasn’t enough to push absorption. Net absorption in the quarter was down more than 283,000 square feet. Foss attributes this to market demand shifting to larger property types, leaving a lag in leasing for smaller boxes. “We continue to see demand in industrial space for those assets greater than 75,000 square feet,” he says. “On the flip side, leasing and sale activity of smaller properties under 50,000 square feet as been adversely effected as a result of the pandemic.”
While ecommerce companies, typically users of larger properties, have benefited from increase activity during the pandemic, manufacturers and small businesses have not. “Manufacturers and small business continue to struggle as uncertainty surrounds the market. Fortunately for Orange County, new construction is limited which will help in keeping the inventory in check,” says Foss.
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Prior to the pandemic, Orange County was already a highly sought-after industrial market with little product availability. The pandemic has put more pressure on the supply constraint for large boxes. “There was a clear shift occurring, pre-COVID, of customers spending habits moving online but the shift has been exacerbated by COVID thus accelerating the pressure on supply for the larger buildings and cold storage facilities across the market,” adds Foss.
The supply and demand imbalance will continue to be an issue in the market following the pandemic. There is little new construction but rising demand. “We will still see a constrained market with limited new construction on the horizon,” says Foss. “Larger, functional buildings will see healthy rent growth for the foreseeable future as tenants are left with very few suitable options.”