Real Estate Outlook
orange county
industrial Market
third Quarter 2014
Industrial vacancy reaching historical lows in Orange County
Average rental rates and sale prices continue to rise as market remains tight
In the third quarter 2014, the 228.9 million-square-foot Orange County industrial
market once again reported extremely tight occupancy levels as the local
economy has recovered from the downturn of a few years ago. Led by smalland mid-sized local distributors and manufacturers who have been in expansion
mode, vacancy levels are approaching historical lows as many industrial users
have been having trouble finding buildings specifically for their needs. In
addition, with only 1.17 million SF under construction constituting a meager
0.5% of the existing industrial base inventory, it appears that market conditions
will remain tight into 2015.
TRENDLines
5- YE A R Trend
VACANCY
2.9%
Seven straight quarters
of decreasing vacancy
A B S O R PT I ON
1.2 million SF
econom y
Local metro economy in expansion mode with improving economy
With the Bureau of Economic Analysis revising its second quarter GDP growth
estimate to 4.6% on an annualized basis, the overall US economy has grown
much faster as the year has gone on despite unusually colder winter conditions
that negatively affected the economy to begin 2014. With other economic
indicators up including consumer confidence, personal consumer expenditures,
manufacturing activity and port volumes, the US economy has been in
expansion mode for much of the year. As a result, the Orange County industrial
market has benefited, although concerns over a slowdown in the global
economy will continue to be prevalent into next year.
Small- and mid-sized
users lead demand
R ENTAL R ATE
$0.65 PSF
Rates increase for ninth
consecutive quarter
UNDE R CON S T R UCT I ON
1.2 million SF
Development at highest
level since 2007
S u p p ly a n d D e v e l o p m e n t
Industrial development now at its highest level since 2007
In the third quarter, only 339,445 SF was completed in the Orange County
industrial market, including Phase II of Anaheim Concourse as well as Anaheim’s
Ajax La Palma Business Center. With 1.17 million SF of industrial space currently
under construction, Orange County is seeing the highest level of new industrial
development in several years. However, as mentioned previously, the amount
of industrial projects underway constitute just 0.5% of the total industrial base
inventory in Orange County. With residential and commercial development back
as well, industrial developers have had to compete for potential infill locations
with retail and multifamily developers. As a result, expect conditions to continue
to be tight as the local industrial market remains extremely supply-constrained.
C u rrent Q uarter
CAP R ATE S
6.4%
Cap rate movement
stable
JOB GROW TH
17,900 jobs
Metro employment up
1.2% year-over-year
orange county industrial Market
third Quarter 2014
demand
CONSUMER SPENDING GROWTH
Small- and mid-sized users lead strong industrial demand
UNITED STATES
1.5%
1.0%
0%
-1.0%
-1.5% 05
06
06
08
09
10
11
12
13
14
SOURCE US Dept of Commerce
PURCHASING MANAGERS INDEX
UNITED STATES
75
VACANCY
Total vacancy rate decreases for the seventh consecutive quarter
50
25
0 05
Demand for industrial space was again strongly positive at approximately 1.2
million SF in the third quarter. This brought 2014 year-to-date net absorption to
2.8 million SF, up from net absorption of 1.8 million SF in the first nine months of
2013. Major leases signed in the third quarter included Pleaser USA subleasing
184,000 SF at 105 S Puente St in Brea as well as Cadence Aerospace leasing
144,000 SF at 3130-3150 Miraloma Ave in Anaheim and OneSource Distributors
leasing 125,773 SF at 12101 Western Ave in Garden Grove. With residential and
commercial construction, as well as consumer expenditures, up from last year,
it is no surprise that the industrial market has seen broad-based improvement
in demand in 2014. For the remainder of 2014 and into 2015, expect continued
industrial absorption around the region as the overall economy expands.
06
07
08
09
10
11
12
13
14
SOURCE Institute of Supply Management
COMBINED PORT VOLUMES
The total vacancy rate in the Orange County industrial market decreased to just
2.9% in the third quarter, a 140-basis-point decrease from a total vacancy rate
of 4.3% 12 months ago. This industrial vacancy level is among the lowest in the
US, and total vacancy in Central County (2.3%), South County (2.4%) and West
County (2.6%) are now approaching all-time recorded lows. Falling vacancy has
brought developers to the market, searching for infill development sites that can
be developed or redeveloped into modern logistics or high-end manufacturing
projects. Expect decreasing vacancy to continue around the region for at least
the next 12 months due to supply constraints and pre-recession demand levels.
LOS ANGELES/LONG BEACH PORTS COMBINED MILLION TEUs
20
R ENTAL R ATE S
15
Weighted average asking rental rates rise for ninth consecutive quarter
10
5
0
05
06
07
08
09
10
11
12
13 14 YTD
SOURCE Ports of LA and Long Beach
The direct weighted average asking rental rate market-wide increased to $0.65
PSF per month (up 10% year-over-year), the highest level of average industrial
rental rates reported market-wide since late 2008. The rental rate increase is
primarily due to vacancy levels among the lowest reported nationally, with
average rents in South County ($0.77 PSF), Greater Airport Area ($0.71 PSF)
and Central County ($0.66 PSF) expected to surge past previous historical peak
averages. Expect continued rental rate increases with year-over-year rental rate
growth possibly topping 15% if industrial space demands remains elevated.
Metro Orange County Industrial Market Indicators
Property Class
Warehouse/Distribution
Manufacturing
OC Metro Total
inventory
Under
construction
Q3 NET
ABSORPTION
ytd Net
absorption
direct
vacancy
sublease
space
total
vacancy
average
rate psf
196,493,755
1,170,232
935,585
2,420,038
2.5%
0.2%
2.7%
$0.63
32,453,471
-
242,740
350,879
3.8%
0.0%
3.8%
$0.71
228,947,226
1,170,232
1,178,325
2,770,917
2.7%
0.2%
2.9%
$0.65
2 R E AL E STATE Outlook ora nge c ount y INDUSTRIAL MARKET Q3 2 0 1 4
I NVE S TMENT MA R K ET
Sales volume up year-over-year as investors and
owner/users battle for properties
With $175.7 million worth of sales volume in the third
quarter (up 24% year-over-year), the Orange County
industrial investment market has seen a sharp rise in
interest from investors looking for well-located industrial
properties. With 2014 year-to-date industrial sales volume
of $695.0 million (up 23% from the first nine months of
2013), the local industrial market has definitely seen a
pickup in investor activity, especially from buyers looking
outside of nearby markets in Los Angeles and the
Inland Empire. The largest sale of the quarter involved
KTR Capital Partners acquiring the soon-to-be-vacated
Yokohama Tire headquarters building at 601 S Acacia Ave
in Fullerton for $42.75 million ($97 PSF). This was followed
by Meyer Corporation acquiring the recently completed
3-building Phase II of Anaheim Concourse in Anaheim
for $28.8 million ($148 PSF). With the Federal Reserve
indicating that they are in no hurry to raise interest rates
in the first half of 2015, expect industrial sales volume
and pricing to continue to hit record levels next year as
investors and owner/users continue to compete for welllocated properties in a very tight market.
Metro Orange County NET ABSORPTION AND VACANCY
NET ABSORPTION MILLION SF
6.0
8%
3.0
6%
0
4%
-3.0
2%
-6.0
05
06
07
08
09
10
11
12
13
14
0%
SOURCE: Transwestern
Metro Orange County RENTAL RATES VS. CONSTRUCTION
UNDER CONSTRUCTION MILLION SF
AVERAGE RENTAL RATE
1.5
$0.80
1
$0.70
0.5
$0.60
0
OUTLOO K
05
06
07
08
09
10
11
12
13
14
$0.50
SOURCE: Transwestern
Expect increased rents and sale prices as the local
economy continues to improve
The Orange County industrial market has been among the
best performing industrial markets nationally as rental rate
growth and average prices have returned to levels not seen
since before the recession. With average rental rates that
are among the highest in all of Southern California, it is no
surprise that the market has attracted investors who are
finding very little product to acquire in either Los Angeles
or the Inland Empire industrial markets. For the remainder
of 2014 and into the first half of 2015, expect industrial
market conditions to remain extremely tight with area
landlords beginning to push rental rates up higher than
they have so far. n
VACANCY
Metro Orange County HISTORICAL SALES TRANSACTION ACTIVITY
METRO ORANGE COUNTY SALES VOLUME MILLIONS
400
300
SOURCE: Name goes here
200
100
0
06
07
08
09
10
11
12
13
14
SOURCE: Real Capital Analytics
R E A L E STATE Ou tloo k or ange c ou nty INDUSTRIAL M ARKET Q 3 2 0 1 4 3
orange county INDUSTRIAL MARKET
third Quarter 2014
Metro Orange County Industrial Market Indicators
MARKET AREA
inventory
Under
construction
Q3 NET
ABSORPTION
ytd Net
absorption
direct
vacancy
sublease
space
total
vacancy
average
rate psf
Greater Airport Area
28,429,498
-
57,336
-93,473
4.2%
0.3%
4.5%
$0.71
Central County
80,198,771
625,950
598,777
1,290,901
2.2%
0.0%
2.3%
$0.66
North County
49,673,998
358,128
213,441
494,656
3.1%
0.4%
3.5%
$0.57
South County
29,598,744
-
87,081
853,874
2.3%
0.1%
2.4%
$0.77
West County
41,046,215
186,154
221,690
224,959
2.6%
0.0%
2.6%
$0.60
228,947,226
1,170,232
1,178,325
2,770,917
2.7%
0.2%
2.9%
$0.65
OC Industrial Market Total
MA J O R LEA S E ACT I V I TY
PROPERTY
tenant
type
market AREA
submarket
105 S Puente St
Pleaser USA
184,000
sf
Sublease
North County
Brea
3130-3150 Miraloma Ave
Cadence Aerospace
144,000
New Lease
Central County
Anaheim
12101 Western Ave
OneSource Distributors
125,773
New Lease
West County
Garden Grove
1206 N Miller St
Longust Distributing
93,818
New Lease
Central County
Anaheim
MA J O R S ALE S ACT I V I TY
PROPERTY
price
price psf
buyer
market AREA
submarket
601 S Acacia Ave
$42,750,000
$97
KTR Capital Partners
North County
Fullerton
Anaheim Concourse-Phase II (3 bldgs)
$28,800,000
$148
Meyer Corporation
Central County
Anaheim
Blue Gum Industrial Park (7 bldgs)
$19,389,500
$110
Turner Development Corp.
Central County
Anaheim
2330 Raymer Ave
$12,600,000
$90
Michael Nicholas Designs
North County
Fullerton
DEVELOPMENT ACT I V I TY
PROPERTY
sf
type
developer
market AREA
submarket
Anaheim Concourse-Phase I (4 bldgs)
625,950
Class A Warehouse/Distribution
Panattoni & Clarion Partners
Central County
Anaheim
Saturn/Nasa Business Park (3 bldgs)
358,128
Class A Warehouse/Distribution
Western Realco
North County
Brea
17332 Gothard St (2 bldgs)
144,754
Class A Warehouse/Distribution
Shea Properties
West County
Huntington Beach
Contact
Methodology
Michael Soto
Research Manager, Southern California
213.430.2525
[email protected]
The information in this report is the result of a compilation of information on industrial
properties located in the Los Angeles and Ventura County metropolitan area. This report
includes warehouse/distribution and manufacturing properties 10,000 SF and larger,
excluding R&D/flex facilities and industrial condominium buildings.
601 S. Figueroa Street, Suite 2750
Los Angeles, California 90017
T 213.624.5700 F 213.624.9203
www.transwestern.net/losangeles
Copyright © 2014 Transwestern. California Brokerage License #01263636. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information
contained in this report was gathered by Transwestern from CoStar and other primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such
information and expressly disclaims any responsibility for any inaccuracy contained herein.