Old Industrial Yields to Better Uses

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IRVINE, CA-By studying the age of various commercial real estate buildings in Orange County and the decades in which they were built, Jones Lang LaSalle has discovered that construction of industrial buildings has decreased dramatically since the 1970s. One reason for this decline in industrial development has been the giving way of industrial buildings to higher and better uses, Zach Niles, SVP industrial real estate advisory and brokerage operations for JLL, tells GlobeSt.com.

“In the 1950s through the 1970s, the majority of development in the industrial world was manufacturing for the aerospace industry—not distribution and warehousing,” says Niles. He explains that industrial land and property are the lowest common denomination in terms of value due to density issues. When buildings become functionally obsolete, as many older industrial buildings have, they become land value again and can be redeveloped into higher and better uses including residential, office and retail.”

Beginning in 2009, the shift from industrial to office began, but much obsolete industrial space has been and continues to be converted to residential. “Between 2003 and 2007, that was a significant part of our business plan,” says Niles. “You're seeing that again today in pretty good numbers.”

Still, the industrial stock in Orange County isn't going to disappear any time soon. “Executives want to be in Orange County,” says Niles. “Industrial is slowly shrinking, but there's still great demand for it because executives want to be here. But Orange County is much more of an owner/user market in the industrial world. The typical building size is between 30,000 and 70,000 square feet, and the size range and demand for leasing taps out at 200,000 square feet—you might as well be out in the Inland Empire for that size property.”

Geographically speaking, much of the industrial stock is located in the northern part of the county, with 58 million square feet in Anaheim alone.  “In the Airport area, you're seeing a lot of new office development, and you're seeing some of that industrial going to office. You're also seeing a lot of industrial on the east side of the 405 freeway—off of Main and Jamboree—filling from industrial to residential. There are pockets now of industrial, but no expansion of actual territory. Property that is dysfunction is also being redeveloped for [more modern] industrial, but there are no new pockets.”

As GlobeSt.com recently reported, demand for industrial space that can house small to medium-sized business is on the rise in Orange County, reflecting the overall health of the sector, according to a recent report from Colliers International.

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