Industrial Tightens; Office Rates Up

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IRVINE, CA-With a modest 4.4% vacancy rate, the Orange County industrial market is continuing to recover, and the office market is showing increasing lease rates for the first time since before the downturn, Voit Real Estate Services tells GlobeSt.com exclusively. Both industrial vacancy and availability continue trending downward and have displayed percentage drops comparable to figures seen in 2012, and office lease rates finished the third quarter at a 1.6% increase from the previous year's rate.

Unoccupied direct/sublease industrial space finished the quarter at 4.42%, one of the lowest figures seen since the first quarter of 2009 and a decrease of 0.9% when compared to the third quarter of 2012, Voit reports. The South County submarket had the lowest vacancy rate in the county at 3.2%. “We are forecasting that vacancy will continue its downward trend in 2013, ending the year at around 4.2%,” says Jerry Holdner, VP of market research for the firm.

In addition, industrial availability, which measures direct/sublease space being marketed, came in at 6.44% for the third quarter of 2013, which is a drop from the 6.85% seen in the previous quarter and a decrease of 18.77% from 2012's third-quarter rate of 7.94%. This lack of available space is putting upward pressure on pricing, says Holdner.

"Currently, the Orange County market has very little space vacant and/or available under 100,000 square feet," Holdner tells GlobeSt.com "With the lack of supply on the market today, we are forecasting that lease rates and sale prices will continue to increase.  In fact, I wouldn't be surprised to see double-digit pricing increases over the next year. Current pricing has increased 8% to 9% over the past 12 months."  

Despite positive indicators in the industrial market, however, Voit is keeping a close eye on demand in the sector, which, since it is ultimately influenced by employment and overall economic stability, will need to be sustained in coming quarters in order for the county's industrial market to maintain its pace of recovery.

As GlobeSt.com reported yesterday, Orange County currently has 978,000 square feet of industrial space under construction, with a 3.1% vacancy rate, according to CBRE Group Inc. The last time the county hit these levels was in third-quarter 2006, when 979,000 square feet was under construction and the market was at a 2.3% vacancy rate, the firm reports.

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On the office side, the average asking full-service gross lease rate per month per square foot in Orange County rose 1.6% by the end of the third quarter from $1.88 to $1.91. This is 2 cents higher than 2013's third-quarter rate, “hopefully indicating a bottom in the downward trend of asking lease rates,” says Holdner.

Class-A office asking lease rates for the county averaged $2.10, the highest rates fetched in the South County submarket at $2.22. “We are forecasting that rates will continue to increase in the near future,” Holdner says.