2022 Q4 INDUSTRIAL REPORT ORANGE COUNTY RECORDS FALL: STRONG DEMAND PUSHES RENTS, OCCUPANCY
2022 Q4 INDUSTRIAL REPORT ORANGE COUNTY shows A fourth-quarter surge in demand for space drove the county’s overall vacancy rate to a record low 1.6% in 2022 and lease rates continued their rise to unprecedented levels. CoStar’s year-end national survey shows Orange County with the lowest vacancy rate of any metro west of Florida.
Net absorption totaled 817,228 SF in the fourth quarter and 892,331 SF for the year. After the 1.9 million SF of net growth in 2021, it was the second highest volume of annual growth since 2015. In three of the county’s four submarkets there was positive growth for the year.
There were 8,239 buildings totaling 273.8 million SF in Lee & Associates’ fourth-quarter survey. Available space totaled 10.1 million SF. Occupancy hit 269.4 million SF, a record. It was the first quarter in which vacant space totaled less than 5 million SF.
At the close of 2022, asking rental rates averaged $1.56 per SF triple net countywide, a record 18% year-over-year increase that follows a 13.7% jump in 2021 and 7.5% average annual rent growth the previous five years. Average asking rents were lowest in West County at $1.50 per SF and highest in South County averaging $1.64 per SF.
Some frustrated users will get relief from the 18 buildings totaling 3.1 million SF that are under construction countywide. But supplies of space have tightened steadily since vacancy peaked at 7.6% in 2010. In addition to sustained tenant demand there has been a 6.4-million-SF reduction of inventory as well-located industrial buildings are razed to make way for higher-intensity uses.
Demand for space has been greatest in the 115.7-million-SF North County submarket, the county’s largest, where the vacancy rate settled at 1.1% at the end of 2022 on 1 million SF of fourth-quarter net absorption. It was the most quarterly growth of any Orange County submarket in 18 years. Average asking rents were $1.45 per SF at the end of 2022, a 29.5% year-over-year increase.
In the 72.2-million-SF Airport submarket, healthy quarterly tenant growth over nine of 10 quarters starting in 2019 has given way to three straight quarters of negative net absorption totaling 684,387 SF. Meanwhile, total inventory was reduced with the loss of nine buildings in 2022 totaling 822,386 SF.
There was 142,093 SF of fourth-quarter tenant expansion in the 42.8-million-SF West County submarket and 513,858 SF of net absorption for the year, the most since 2014. Average asking triple-net rent hit $1.50 per SF.
Tenant growth in the 42.8-million-SF South County was 197,809 SF in the red in Q4 but was up 302,995 SF for the year. Rent growth in 2022 averaged 11.4%.
The largest lease of the quarter was the five-year renewal of a 135,371-SF building on Dyer Road in Santa Ana for $1.55 triple net.
San Francisco-based investment trust ProLogis acquired a 1.2-million-SF portfolio of 14 buildings in Q4 in North County for $297 million. It was part of a $23-billion acquisition of properties from Duke Realty Corp. of Indianapolis.
MARKET FORECAST
2022 Q4 INDUSTRIAL REPORT ORANGE COUNTY In their recent annual forecast for 2023, Cal State Fullerton economists said high inflation will be stickier than expected, forcing the Fed to keep interest rates elevated and making a recession difficult to avoid within the next 12 months.