DEMAND FOR SPACE INTENSIFIED IN 2021
Demand for industrial space in Orange County, already one of the hottest markets in the country, continued to set records in 2021.
Out of a total inventory of 274.1 million SF surveyed by Lee & Associates, only 5.8 million SF are vacant.
Year-over-year rent growth averaged a record 16% countywide in 2021. Net absorption in 2021 totaled 1.8 million SF. It was the most tenant growth in six years, during which average rents have increased 83% countywide.
Orange County industrial space has been in short supply for years. And with a growing number of companies seeking to be in close proximity to the twin ports of Los Angeles and Long Beach, demand has intensified.
Three of the four submarkets posted net growth in 2021, but North County, which accounts for 42% of OC’s industrial base, was 457,642 SF in the red.
The Airport submarket reported 1.3 million SF of net absorption in 2021. It was the most growth since 1999 in the 72.9-million-SF submarket. Year-over-year rents increased 23%.
There was 598,000 SF of tenant expansion in South County in 2021, the most since 2014, which pushed down the vacancy rate in the 42.5-million-SF submarket to 2.9%. In South County, rents gained 9% in 2021 and are the costliest in Orange County, averaging $1.46 per SF.
Net absorption in North County was negative in the fourth quarter by 183,537 SF, but because the submarket’s inventory fell nearly 1.5 million SF in the last quarter the vacancy rate settled at 1.3%.
There was 347,753 SF of net absorption in West County in 2021, a turnaround from the contraction of 741,041 SF in 2020. But net absorption in Q4 was negative 96,406 SF.
The biggest lease in the fourth quarter was to Atlas International for 100,922 SF of space at 5555 McFadden Avenue in Huntington Beach. The 10-year-lease has a $1.25 per SF start rate. The rehabbed building has 11 loading docks.
The three largest sales in the fourth quarter were for buildings in North County. The largest was Oaktree Capital Management’s purchase of a 123,972-SF warehouse building from CapRock Partners at 2009 Raymer Ave., Fullerton, for $32.2 million, or $259.33 per SF. Rexford Industrial Realty of Los Angeles purchased a 106,000-SF building on East Coronado Street in Anaheim for $28 million or $264.15 per SF. The Blackstone Group acquired a 102,000-SF building at 1500 East Walnut Avenue in Fullerton for $35 million or $348.04 per SF.
MARKET FORECAST
Robust job and economic growth will be mixed with high inflation and rising mortgage rates that could derail home price gains, said Chapman University economist Jim Doti in his recent forecast. Doti also said he sees the likelihood of a recession possibly at the end of the year.