After strong growth in the first half of 2023, leasing activity in Orange County declined by 36% in the third quarter, with nearly 432,000 square feet of negative net absorption, reflecting an overall cooling of industrial demand in Southern California.
Sublease availability exceeded 2 million square feet in Orange County at the end of Q3, with rents leveling off after doubling over the past five years, according to JLL's Q3 market report.
"The recent declines in imports and a more conservative market sentiment have begun to normalize the surging demand observed since the pandemic," the report said.
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"Looking ahead, slowing leasing activity and mounting sublease availability are likely to continue through the remainder of 2023 as moderation goes further in Orange County," JLL noted.
During the last four quarters, renewals have accounted for more than half of the quarterly leasing volume, the report said.
The sublease total of 2 million square feet is closing in on the level it last hit at the end of 2020. Sublease additions came from a more diverse range of industries in the third quarter, indicating a spreading readjustment in industrial space demand amid economic uncertainty.
On the supply side, three of the four completions were delivered with vacancy, resulting in a 30 bps uptick in the total vacancy rate, which hit 2.4% at the end of Q3. About 1.8 million square feet off new industrial supply is under construction in Orange County.
"In addition to the 915,000 square feet to be delivered by year-end, softening demand and record high rents are expected to push total vacancy higher in the near future," JLL's report said.
SoCal's Inland Empire, the nation's busiest industrial market in 2022, with vacancy rates below 1%, also is experiencing a cooling off.
A slew of pre-leased deliveries pushed third-quarter net absorption up to 2.19 million square feet in Inland Empire as large projects in the IE West submarket delivered more than 6 million square feet, according to CBRE's Q3 2023 market report.
Overall, however, the nation's hottest industrial market in 2022 is showing signs of a pronounced cooling a year later, as vacancy and availability rates increase while leasing activity and sales are dropping.
Overall vacancy increased in Inland Empire by 80 bps to 3.5% in Q3, up from 2.7% the previous quarter, and availability increased to 6.7% from the Q2 level of 5.9%, CBRE reported.
Vacancy in the larger size ranges of 300,000 square feet and above made up about 45% of vacant space in the Inland Empire as large occupiers gave back extra space and others vacated due to bankruptcy, the report said. Available sublease space grew to 8.7 million square feet in Q3, with sublease availability concentrated in 100,000 square feet and above size tranches.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
