Orange County Industrial | Understanding Vacancy Trends & Lease Negotiations
Orange County’s industrial market has long been recognized for its resilience and strong performance, yet recent shifts indicate a notable change in dynamics. The expansion of space availability, coupled with cooling tenant demand, suggests a shift towards a more balanced market landscape.
Orange County Rising Vacancies And Negative Net Absorption
As Orange County’s industrial real estate market witnesses increasing vacancies, landlords and investors face unprecedented challenges and opportunities. As of the first quarter of 2024, vacancy rates stand at 3.9%. Rising vacancies are reshaping the competitive landscape, particularly evident in mid-sized buildings within the 100,000 to 200,000 square foot range. For instance, a newly completed 187,500-square-foot distribution building in Anaheim, listed at an asking rent of $2.15 per square foot, triple-net, exemplifies the challenge landlords face in attracting tenants amidst increased competition. The property has been on the market for roughly 34 months. Recent net absorption data also reveals a decline in tenant occupancy levels across the county’s industrial market, measuring a negative 1.5 million square feet since the beginning of 2024, reflecting a continuing downward trajectory from the previous year.
The recent changes are not only impacting larger industrial sites but also properties under 50,000 square feet. In Anaheim, approximately 60 properties under this threshold are currently available for lease, with 18 falling within the 20,000 to 50,000 square feet range and nearly 36 spanning between 5,000 and 20,000 square feet. This shows that the entirety of the industrial market is changing. Not only are the larger properties that national tenants occupy being affected, but also the smaller properties occupied by everyday tenants.
Potential Impact on Lease Rates
The implications of these trends extend beyond mere occupancy metrics, influencing investment activity in the region. With vacancies on the rise and a significant amount of new inventory entering the market, landlords face heightened competition to attract and retain tenants. Consequently, market dynamics are shifting in favor of tenants, prompting landlords to reassess their rental rates and offer increased concessions. This trend towards potentially lower rents reflects the market’s response to an increasingly saturated leasing environment, where supply outpaces demand, exerting downward pressure on rental rates.
Despite the challenges posed by a saturated leasing market, sales activity in Orange County’s industrial sector remains relatively strong compared to other commercial real estate property types. Industrial assets continued to attract investor interest, retaining their position as the top property type for investment in the region.
Overall, the Orange County industrial real estate market is undergoing a period of transition characterized by evolving supply-demand dynamics and shifting investor sentiments. While the prospect of decreasing rents poses challenges for landlords, the market’s resilience in terms of sales activity indicates underlying strength and stability. Going forward, stakeholders in the industrial sector will need to remain adaptable, leveraging market insights to develop strategies that optimize value and mitigate risks in a dynamic and competitive landscape.
