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ORANGE COUNTY, CA-Market contraction for industrial and R&D product is continuing throughout the county, with vacancy rates on the decline and lease and sales prices on the rise.

A market report just released by Grubb & Ellis Co reveals a sharp decline in available industrial property on both a quarterly and annual basis. Compared with the same period of 1999, available industrial space year-to-date declined 27%.

Even so, there is still a lot of space available for lease in most areas of the county, but the majority of space for sale is in the north and west county and airport areas.

Sales and leasing activity is up 62% this year, from 6.6 million sf last year to 10.7 million sf for the first nine months of 2000. Space under construction also declined sharply, from 990,000 sf through the third quarter of last year to 405,000 sf for the same period this year. However, Scott Read, SVP of Grubb & Ellis, credited this slide to an increased number of project completions in the third quarter of 2000.

The vacancy rate for industrial properties dropped to 5.9% this year, from 8.1% a year ago. Lease rates for traditional industrial product are up 4% to 5% over last year, and sales prices are up 7% to 8%. Product for sale or lease in the over 100,000-sf range is difficult to find; and standard industrial buildings, which normally lease for lower rates, are leasing at R&D prices.

Vacancy rates for R&D product are about half what they were for the first nine months of 1999. So far this year 8.2 million sf of R&D property has been sold, and leasing activity increased 24%. During the same period last year, a total of 6.6 million sf of this type of property was sold or leased.

Consequently, available R&D space is down 48%, from 14.3 million sf in 1999 to 7.4 million sf so far this year. However, available space grew 25% from quarter to quarter. The greatest amount of available R&D space for sale or lease is in the airport and south county areas.

The amount of this type of space under construction is up 1%, to one million sf year-to-date over last year at this time. Much of the product currently under construction is two-story, four-to-one parked buildings, which are in high demand right now.

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