Q2 2022 Industrial Market Outlook – Orange County
Orange County’s industrial market has strengthened, as the economy and ecommerce surged post-pandemic. Soaring rent triggered construction while incessant demand for warehouses depleted existing supply. This quarter vacancy inched up to 1.9 percent, while the average asking rent increased 16.8 percent to $1.32 per square foot triple net from 2Q 2021. With 635,642 square feet of completed construction added to the market since Q2 2021, available space increased 3.5 percent over the same period. Industrial space under construction jumped 14.2 percent from the prior quarter as developers broke ground on new projects. Every submarket in Orange County has industrial pace under construction. In North Orange County, the largest industrial submarket, four warehouses representing 1,536,055 square feet at Goodman Logistics Center Fullerton remained under construction. Of which Building 2 at 538,226 square feet is the largest industrial building under construction and remains available.
The market had a solid first half of the year, with 4,399,898 square feet leased. Post pandemic the demand for large warehouse distribution facilities, driven by ecommerce, put construction on a fast track in Orange County. Nighty-four percent of the 1.5 million square feet of warehouse distribution space under construction was larger than 100,000 square feet – with 28.4 percent of that space already preleased. The largest preleased project was a 433,865 square foot distribution facility leased to Cambro Manufacturing at Huntington Gateway Business Park.
TRENDS TO WATCH
Rising rent and sale prices supported the construction of warehouse distribution space in the market which will provide limited space for businesses to expand in Orange County. Development is attempting to kept up with the demand. Year-to-date, the North submarket suffered a 21.0 percent year over year decline in lease volume due to scarce availability of space, as rent increased 19.4 percent, and the vacancy rate dropped to 1.3 percent – the lowest in the region. Goodman Logistics Center Fullerton will provide much needed warehouse distribution space in the North. Airport, which had nothing under construction a year ago, has one 219,827 square foot built-to-suit facility under construction leased to Rivian Automotive.
Tenants looking to secure space and control occupancy cost face headwinds from increased pricing and interest rates. Year to date square footage sold decreased 8.1 percent from Q2 2021 to Q2 2022, as lofty prices impacted sales. Leasing volume decreased 28.8 percent over the same timeframe. Rent in every submarket pushed above $1.25 per square foot triple net as the average sale price soared 22.4 percent year over year to $355 per square foot. Higher costs will give users pause as they seek to buy or lease in Orange County.