DEMAND AND RENT GROWTH SLOW; CONCESSIONS RETURN
2023 Q4 INDUSTRIAL REPORT ORANGE COUNTY shows tenant demand eased in 2023 and the pace of rent growth slowed. Nevertheless, more new industrial space was delivered than in any year since 2001, as the countywide vacancy rate remains near its all-time low.
Despite 450,825 SF of fourth-quarter tenant expansion, there was nearly 1.6-million-SF of negative net absorption in 2023, the most in 14 years. But quality available space remains well below historical averages as vacancy rates range from 2.6% at the Airport and in North County to 4.5% in West County. Countywide, the vacancy rate closed out the year at 3.2%, up from the 1.8% record low at the end of 2022.
Vacant space increased by 3.8 million SF year over year and now totals more than 8.8 million SF. But available space gained 6.3 million SF in 2023, swelling that total to nearly 15.9 million SF, the most since 2015.
Countywide rent growth fell to 9.6% year over year from 18.2% in 2022 and 14.8% in 2021. Rents gained 6.8% and 4.5% in 2020 and 2019 respectively. Some anxious landlords resumed offering rent concessions to credit tenants in 2023.
Despite posting a gain of 586,213 SF in the fourth quarter, tenants in the 117.3-million-SF North County submarket, the county’s largest, shed 693,362 SF of space in 2023 after expanding by 618,336 SF in 2022.
Tenants in the 43.5-million-SF South County submarket contracted by 685,850 SF over all four quarters, pushing up the vacancy rate from 2.4% to 4.4%.
The 72.5-million-SF Airport submarket reported net absorption for the year of negative 278,173 SF. That represents an improvement for landlords from the 571,664 SF of contraction in 2022.
Countywide, 15 new buildings were delivered in 2023, including five in the fourth quarter. In a clear illustration of a recent demand trend for larger, premium buildings, the buildings delivered in 2023 average 54,000 SF. This is considerably greater than the average 33,707 SF size of the 8,235 buildings in the Lee & Associates quarterly survey.
The 43.9-million-SF West County submarket posted 386,018 SF of Q4 net absorption. More than 663,000 SF are complete in the six-building, 1-million-SF Huntington Gateway project by SARES REGIS Group. The vacancy rate settled at 4.5%, up from 2.2% in 2022.
The largest direct lease in the quarter was for a 167,778-SF building at 5800 Skylab Road., Huntington Beach. The tenant, a soap and detergent manufacturer, signed a five-year lease.
The largest property trade in the quarter was a 21-acre site at 1683 Sunflower Ave., Costa Mesa, purchased for $72 million by Garden Homes of New Jersey. Buildings on the property have four tenants. But the site has been approved as a mixed-use project called One Metro West that will include 1,057 residences plus retail and office space.
MARKET FORECAST
In their forecast for 2024 Chapman University economists said the job outlook looked to show “slow but slightly positive growth of 0.6%” for Orange County for 2024 and roughly the same for all of California.