Larger Industrial Now Under Construction

NEWPORT BEACH, CA-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.

Other Southern California markets are also experiencing strong industrial development. The market has approximately 18 million square feet now underway, leading other top US industrial markets in this sector with nearly twice as much space under construction as Dallas and almost four times as much as the Chicago industrial market, CBRE reports. Strong figures in both the Inland Empire and Los Angeles markets indicate a pre-recession peak has been reached in both regions.

The typical buildings currently under construction in Orange County tend to be larger in nature: 100,000 square feet and above, Kurt Strasmann, senior managing director and leader of CBRE's Industrial Group in Greater Los Angeles and Orange County, tells GlobeSt.com. “Typical use is designed for warehousing with all the bells and whistles: high clearance, ample dock doors, ESFR sprinkler systems, high image and generally well located.” Some of these projects are being developed on a speculative basis, while others are preleased, he adds.

There are a few developments coming out in the mid-size range—30,000 to 80,000 square feet—that are being offered for sale and for lease, Strasmann says. “The for-sale market has been exceptionally strong [in this size range]. It is very expensive to build the smaller free-standing product because the developer loses so much coverage, thus driving up the land basis.”

As for other trends in Orange County industrial construction, Strasmann says, “You will continue to see big sale-price increases. The market has really heated up, and pricing has dramatically changed over the last 12 months. This is the result of heavy demand from buyers and very limited supply of available product for sale.”

As GlobeSt.com reported last week, CBRE recently arranged four industrial leases in Orange County that total more than 517,000 square feet. Three of the leases are for properties in Santa Ana, and one is for a property in Anaheim.