Q3 2022 Industrial Market Outlook – Orange County
MARKET OVERVIEW
Orange County’s industrial market vacancy rate remained near its record low as around the clock operations at the ports of Los Angeles and Long Beach gained the upper hand on bottlenecked cargo awaiting to get moved out to already jam-packed warehouses. A limited supply of industrial space and continued demand for warehouses has kept rent soaring. Vacancy registered to 2.0 percent, while the average rent increased 27 percent from last year to a $1.46 per square foot triple net. With only 956,231 square feet of completed construction added to the market in 2022, vacant space decreased 24.1 percent year over year. Industrial space under construction shot up 56.8 percent over the same timeframe. In North Orange County the four-building 1.5M square foot logistics campus under construction, Goodman Logistics Center Fullerton, has now leased three of its buildings. The market experienced solid leasing activity this quarter, 3.6M square feet, up 37.3 percent from Q3 2021. Sale volume dropped off 42.2 percent to 1,164,477 square feet over the same time frame. The Ports brimming with containers and post pandemic ecommerce boosted demand for large distribution facilities spurring construction. Since 2021 four warehouses larger than 100 thousand square feet were completed in Orange County of which only one remained available for lease
TRENDS TO WATCH
The market will continue to see elevated rent and sale prices as additional space comes online and businesses find options with a rise in availability. Land constrains, construction costs, and rising interest rate will keep development in check with demand. With virtually no construction added to the market in 2022, the Airport submarket experienced a 40.9 percent quarter over quarter decline in lease volume as rent soared 23.5 percent year over year. The North submarket, which finally received new construction via Goodman Logistics Center Fullerton, watched lease volume climb 45.6 percent and rent rise 28.3 percent year over year. With cheap financing no longer a market reality, tenants looking to purchase industrial space to control occupancy cost will weigh the impact of increased borrowing. In Q3 square footage sold decreased 42.2 percent year over year, as prices for warehouse/distribution buildings soared. Almost every submarket witnessed a double digit drop in sale volume over the past year. Rent in every submarket has pushed above $1.40 per square foot triple net. Overall, sales prices soared 48.1 percent year over year, the catalyst for increased development. However, higher interest rates will slow the market, impacting real estate values by increasing borrowing costs.
