TENANT DEMAND, AVERAGE RENT CONTINUES TO SLIDE IN Q3
2024 Q3 Industrial Report Orange County reports tenant demand continued to downshift in the first half, Demand for industrial space continued to weaken countywide in the third quarter, producing a surfeit of sublet space. Although the vacant space is the most since 2013, it’s still 200 basis points less than the national average. The decline in net absorption is the most year to date in 15 years. Average rents also fell for the seventh straight quarter.
Countywide negative net absorption in Q3 totaled 1.3 million SF, bringing the negative total for the year to about 4.1 million SF, the most since the aftermath of the 2008 financial meltdown.
According to 2024 Q3 Industrial Report Orange County most of the Q3 and year-to-date weakness was in the North County submarket, the county’s largest with 118 million SF. About 1.4 million SF was added to the North County’s available inventory in Q3, bringing the negative total so far this year to 3.4 million SF, which includes five new buildings totaling 514,205 SF. Six buildings totaling 628,416 SF are underway.
Negative Q3 net absorption in the 73.1-million-SF Airport submarket totaled 414,580 SF, driving up the negative total for the year to slightly more than 1 million SF, which includes seven buildings totaling 808,977 SF completed to date. Three buildings totaling some 308 million SF remain under construction.
Third-quarter tenant demand in the 43.8-million-SF West County submarket totaled 225,783 SF. The increase is a change from six straight quarters of negative net absorption totaling 857,720 SF.
Tenant growth in the 42.8-million-SF South County submarket was 33,348 SF in the third quarter and totaled 286,692 SF year to date.
The average triple-net rental rate fell to $1.59 per SF, which was down from the $1.71 per SF peak reached at the close of 2023. The 5% vacancy rate in Q3 is up from 2% at the end of Q1 2023 but still less than the 7% national average for the last 20 years. The 4.1 million SF of negative growth since Q1 is the largest year-to-date total since the negative 6.8 million SF of 2009. Sublet space in Q3 totaled more than 2 million SF.
The largest direct leases in the third quarter were led by Big D Flooring, which signed a 65-month agreement for 108,981 SF at 12752 and 12822 Monarch Street in Garden Grove for $1.49 per SF. Manufacturer Wesanco leased 97,896 SF at the same two addresses at $1.79 per SF for 65 months.
The largest industrial sale in the third quarter was a $30.1-million acquisition of a 65-year-old, 161,738-SF, Class C building at 2325-2335 Moore Ave., Fullerton. The building with 21 feet of clear height and 26 loading docks is fully occupied by tenant Van Law Food Products Inc. The buyers were Scind Moore Point and Bain Capital, which also were sellers of a 149,000 SF building 5609 River Way, Garden Grove, that is leased by Amway. Total consideration was $43.5 million.
MARKET FORECAST
Forty-one percent of OC executives surveyed by Cal State Fullerton economists in the second quarter said they believe the Fed will engineer a soft landing. Thirty-one percent said any upcoming recession should be mild. Twelve percent said they think a recession will be less severe than the 2007-09 recession..