MODEST DEMAND RETURNS IN Q1 AFTER RENTS SLIDE 12%

Positive net absorption returned countywide for the second straight quarter, led by modest tenant expansion in the Airport and West County submarkets.

The recent overall growth follows 11 consecutive quarters of declining user demand totaling -9.5 million SF amid increasing supply. The countywide vacancy rate was pushed up from a record low

 of 1.8% to 6.6%. The nationwide average is 7.5%.

Since 2022, 5 million SF of new deliveries were added to the county’s 278.9-million-SF inventory. Available space increased from 11.2 million SF to 24.7 million SF.

There were 556,439 SF of net tenant demand in Q1 after a 527,427-SF gain in Q4. Nevertheless, average asking net lease rates ticked downward in Q1 to $1.50 per SF and are off 12% from the peak two years ago.

Free rent and other concessions are common. It also takes longer to land a user while tenants with large requirements have grown scarcer. For example, asking rent for a state-of-the-art logistics building at 2872 E. La Palma Ave., Anaheim – vacant since its 2023 completion – has been reduced more than half.

Several of the buildings completed in the past year and nearly all speculative projects underway remain available for lease, a further reflection of the recent softening in demand. Currently, there

 are 10 buildings under construction across the county ranging from about 25,000 SF to about 150,000 SF.

There is more tenant interest for buildings less than 100,000 SF and availability is trending around 6%. Smaller industrial buildings are landing tenants in about four months compared to more than nine months for buildings larger than 100,000 SF. Construction in this segment is limited with fewer than 10 properties underway.

Projects in the 100,000–250,000-SF size range also are competing for tenants. Among the nearly 30 buildings in the size range completed since 2024 or under construction, fewer than 10 buildings have been leased. Developers Prologis, Rexford, Newport Beach-based Alere Property Group and others have reduced rents slightly for mid-sized buildings that have remained vacant

 since completion.

The largest lease in Q1 was for a 229,442-SF warehouse at 2501 E. Orangethorpe Ave., Fullerton. The Prologis-owned building was leased by Houdini Inc., a supplier of food and wine gift baskets to leading warehouse clubs, specialty stores, catalogues and online merchants. The 46-year-old building had been vacant for 16 months.

The largest sale in Q1 was local investor Dwight Manley’s acquisition of the 34-acre Beckman Coulter medtech campus in Brea for $139 million. A Costco store and 15 acres of housing by Lennar are planned.

MARKET FORECAST

The war with Iran, rising fuel costs, persistent inflation and interest rates were seen by local business leaders as the biggest challenges facing area companies, according to a Q1 survey by economists at Cal State Fullerton. Other concerns included housing, government deficits, AI and stock market volatility. Tariffs are seen as less of an issue, the survey said.