TENANT DEMAND SHRUGS OFF RECESSION
Despite the pandemic, Orange County posted the most annual tenant growth in five years as strong demand returned in the fourth quarter. Available space remained near historically low levels with the year-end vacancy rate settling at 3.5%.
Fourth-quarter net absorption was 480,104 SF and totaled 941,872 SF for the year, reversing three straight years of negative growth. The pace of annual rent increases slowed to 4.6% in 2020, nearly half the average for
the previous five years.
While the coronavirus recession has caused economic havoc for tenants and landlords of other property types, the lockdown has heightened demand for space among virtually all business categories of industrial users with few exceptions.
Stay-at-home orders have accelerated the pace of change in consumer buying patterns with shoppers spending more dollars online at the expense of brick-and-mortar retail. Companies of all sizes that are structured for online sales of consumer goods have gained. Locally, this also has moved supply-chain and logistics requirements front and center
along with the need for access to the Southland’s giant twin seaports that lately are moving more cargo than ever.
Inbound container traffic in 2020 was up more than 25% through the Port of Los Angeles. The Port of Long Beach announced a November record for handling cargo, up 31% from a year ago. The surge follows a 12% reduction in overall port traffic in the first half and is testing the limits of dockside labor. At year end a flotilla of anchored cargo vessels was facing lengthy delays for berth space.
One of the largest transactions of the year closed in Q4. Lee & Associates engineered the $63.2-million sale of the Orange County Register newspaper’s former printing plant to Amazon. The empty building will be razed to make way for a last-mile distribution facility.
Most of the annual growth was in North County, whose 116.7 million SF of inventory represents 42% of the county’s 275.2-million SF base. About 1.3 million SF of space was absorbed across nine cities in 2020 that include Anaheim, Buena Park, Fullerton, Brea and Placentia. Its vacancy rate at the end of Q4 was 2.3%, and year-over-year asking rents gained an average 14%.
In spite of fourth-quarter negative absorption of 206,780 SF, net tenant demand in the 73-million-SF Airport submarket totaled 420,306 SF in 2020. The year-end vacancy rate was 3.5% throughout industrial neighborhoods in Costa Mesa, Fountain Valley, Irvine, Newport Beach, South Santa Ana and Tustin.
There was 234,433 SF of Q4 net absorption and 151,805 SF for the year in the 42.5-million-SF South County market. The year-end vacancy rate was 4.2% and average rents increased 5.5% in 2020.
The 197,775 SF of Q4 net absorption in West County failed to offset three previous quarters of contraction in which tenants shed 664,713 SF. The vacancy rate closed 2020 at 3.8%, up from 2.2% a year earlier. Average rents gained 3.4% for the year.
The U.S. economy is expected to expand by 5.7% in 2021 after contracting 3.1% in 2020. There will be notable gains in travel and tourism and homebuilding, according to Chapman University’s annual forecast.