Rents have Risen as a Result of Supply Shortages and Low Vacancy Rates.

MARKET HIGHLIGHTS

  • Direct vacancies fell in 3Q 2022 to 1.9%.
  • Average asking rents climbed 40.0% to a market average of $1.58/SF on a triple net basis, a new record high.
  • Average sale prices in 3Q 2022 were at $346.40/SF, with cap rates steady at 3.9%.

Market Drivers

The manufacturing and logistics businesses, which need a lot of space, have been among the major users in the Orange County industrial market. These tenants often seek locations along the transportation arteries in North County, where the majority of industrial inventory is concentrated, as these areas provide greater floor plates and closer proximity to supply trade ports. Seeking a well-educated workforce, High-tech and R&D companies, like Rivian, are driving demand in South Orange County (e.g., Irvine).

In light of recent supply chain disruptions as e-commerce tenants look for warehouses to store their items, the strength of the Orange County industrial market has been bolstered by its proximity to crucial Inland Empire thoroughfares and ports in Los Angeles County. Tenant mobility has changed as a result, with 133K SF more being absorbed in the 3Q 2022.The Orange County industrial market is also benefitting from the lack of available product in other submarkets such as the Inland Empire and the Mid-Counties

Orange County is one of the nation's most supply-constrained metros due to its infill market and lack of undeveloped industrial property; more than 3.1M SF of new space is presently being built there. The next largest brand-new, high-profile industrial building has just begun in June 2022 in the Phase 2, Five (5) buildings totaling 1.0M SF. The highly awaited Goodman Logistics Center is almost completed.

Economic Review

Orange County's unemployment rate was 3.0% in August 2022, up from a revised 2.8% in July 2022 and lower than the year-ago estimate of 6.0%. During the same time period, California had an unadjusted unemployment rate of 4.1%, and the national rate was 3.8%.

In the first eight months of 2022, the Port of Long Beach transported 6,600,560 TEUs, an increase of 4% over the corresponding period in 2021, breaking monthly cargo records.

Near Term Outlook

The outlook for the national industrial market for 2022 is still quite positive, indicating the confluence of a number of factors that have significantly increased demand for industrial real estate. In the short-term outlook, supply-side impact on vacancy or rent growth is not anticipated. Even with record-high prices and a declining market cap rate in a high interest-rate environment, those solid local demand drivers have managed to keep investors interested in Orange County. Contrary to other property sectors, industrial transaction activity picked up in the 3Q 2022, with Class A fundamentals staying strong while pricing in lower tier assets is softening. 


Source: EDD, Costar, Port of Long Beach, OCBJ