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ORANGE COUNTY, CA-The Orange County industrial market posted more than 1.6 million sf of negative net absorption county-wide in the third quarter, the lowest since the fourth quarter of 2001, according to a new report from CB Richard Ellis. CBRE says that the negative absorption figures are a sign that “The ripple effect of the current economic situation” has finally touched the Orange County industrial market, which held out against the economic troubles longer than the county’s office market, which has been slumping since early last year, according to the CBRE report.

The vacancy rate in the county’s 247-million-sf industrial market increased to 3.8% in the quarter from 3.1% in the second quarter, and the availability rate rose to 7.5% from last quarter’s 6.8%, according to CBRE. Voit Commercial Brokerage cites similar figures, reporting that the vacancy rate reached 4.38% in the quarter—compared with 3.82% a year ago—while the availability rate rose to 7.86% versus 5.93% a year ago. While the vacancies are substantially lower than those in the office market, industrial vacancies typically run lower than office statistics.

Voit pegs the negative net absorption in the county’s industrial market at a far lower number than CBRE, only 26,101 sf, but the two companies’ reports are difficult to compare in some respects because they track different inventories and have different methods for accounting for space. Voit, for example, separates out R&D space from manufacturing/distribution space, which accounts for some of the differences in the two firms’ figures. In general terms, however, both firms report Orange County industrial numbers this year that represent a change of direction for a market that has perennially been one of the strongest in the nation. CBRE notes that, based on square footage, industrial leases in the third quarter were approximately 13% smaller on average than in the third quarter of 2007.

CBRE points out that a significant number of transactions in the third quarter involved tenants opting to renew existing leases utilizing a “wait and see” approach, and Voit offers a similar analysis, saying “The recent drop in activity is mostly a result of hesitancy in the marketplace from the continuous stream of negative news in a wide area of topics, most notably the credit crunch.”

Nonetheless, some significant deals did close in the quartrer. Eaton Aerospace signed a 140,630-sf lease in the Irvine Spectrum, the largest lease transaction of the quarter, and in South Orange County an industrial user bought a 73,742-sf building at 2 Orion in Aliso Viejo.

CBRE says that overall, asking lease rates continued to hold despite a decline in the Airport Area, where lease rates for the M&W and R&D sectors slid four cents to 79 cents per sf per month and $1.09, respectively. The county’s M&W properties overall asking rate on average was 68 cents per sf per month, while R&D properties averaged $1.08 per sf. Voit calculates an average asking triple net lease rate of 76 cents per sf per month in Q3, four cents lower than last quarter. The average asking selling price was $164.28 per sf, down from $166.36 in this year’s second quarter and $172 in Q3 last year.

CBRE showed Orange County industrial construction continues unchanged from the second quarter at 245,000 sf, with no new construction starts and some $500 million of projects expected to be completed by year-end. Voit shows total space under construction is 198,570 sf, “a fifth of the amount that was under construction a year ago,” according to the company’s report.

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