Fourth Quarter 2024
Investment Sales Reflect Long-Term Market Confidence in Orange County Industrial Market
E-commerce creates opportunities for growth and long-term stability.
Pent-up demand to own versus lease, driven by available product for sale, created opportunities in the final quarter of 2024.
MARKET OVERVIEW
In Q4 2024, vacancy rates for industrial space in Orange County continued to rise, with a 40-basis point increase quarter-over-quarter, bringing the rate to 4.9%—180 basis points higher than in Q4 2023. Over the past two years, Orange County has added approximately 4.9 million square feet of completed construction, while absorption has resulted in a negative 3.2 million square feet during the same period, signaling a shift in the industrial market’s trajectory.
Completed construction in Q4 2024 saw a significant decline, down 68.2% quarter-over-quarter and 29.6% year-to-date, adding just 1.8 million square feet. However, space under construction has increased by 5.4% compared to last year, rising 15.3% from the prior quarter. Developers Tishman Speyer and Mitsui are banking on a recovery in industrial demand in the region, recently breaking ground on the first phase of a 600,000-square-foot complex in South County, which recorded the lowest vacancy rate in Orange County at 3.0%. Demand for warehouse space remains driven by e-commerce.
Once-strong rent growth, which had fueled new construction, has slowed. The average asking rent in Q4 held steady from the previous quarter at $1.58/SF triple net, registering an 8.7% decrease year-over-year.
Pent-up demand to own versus lease, driven by available product for sale, created opportunities in the final quarter of 2024, leading to a 42.6% rise in sales volume on a square-foot basis compared to the prior quarter. This pushed total sales up by 13.6% from the previous year, totaling more than 3 million square feet year-to-date in 2024. The average price per square foot in Q4 rose 13.9% from Q3 and was up 13.9% from last year, reaching $368 per square foot.
On the leasing side, demand showed weakened results. Leasing volume was down 15.1% quarter-over-quarter and 9.5% year-to-date compared to last year, totaling 10.1 million square feet year-to-date.
TRENDS TO WATCH
Tenants are gaining leverage to negotiate more favorable deals, signaling a market shift that challenges landlords who historically dictated leasing terms. As leasing velocity slows, landlords are adapting by offering concessions and structuring flexible leases.
E-commerce remains a key driver, with companies seeking adaptable solutions to address evolving demand. Meanwhile, efforts to reduce excess warehouse space have fueled a significant rise in vacant sublease space, up 36.4% quarter-over-quarter and 238.9% year-over-year, totaling approximately 2.1 million square feet. This trend suggests opportunities for securing sublease space remain as availability continues to grow.
The supply of industrial space remains ample, presenting options for companies with warehousing needs. Cargo throughput at the Ports of Los Angeles and Long Beach—a critical indicator of industrial demand—rose 22.1% year-to-date as of November. This activity underscores the resilience of regional logistics and supply chain operations, supporting sustained demand for Orange County industrial properties.
In the sales market, elevated prices and interest rates have not dampened investment appetite. Sales dollar volume surged 83.2% quarter-over-quarter and 22.7% year-to-date, exceeding $1 billion.
A standout transaction this quarter was New York-based Ares Management’s acquisition of a Class-A, 310,067-square-foot manufacturing building in South Orange County for $96 million. The 74.6% leased property reflects confidence in the leasing market, with a purchase price of $310 per square foot—15.8% below the quarterly average for Orange County industrial properties.
The median price per square foot increased 16.2% quarter-over-quarter and 16.3% year-over-year, reaching $401. As elevated interest rates persist, slowing demand is expected to further influence pricing trends into 2025.
