VACANCY HITS NEW LOW ON RED-HOT DEMAND
Industrial users leased 1.8 million SF of space in the third quarter. It was the most three-month net absorption in 17 years. The strong tenant expansion also drove down the vacancy rate to an all-time low.
The intensified demand reflects national trends. Businesses are reacting to pandemic-fueled e-commerce growth along with disruptions at several points in the global supply chain, affecting everything from raw materials to finished goods. Locally, a growing armada of as many as 80 cargo ships has been anchored offshore with each awaiting a berth at the port of Los Angeles or Long Beach.
There was healthy growth in each of the county’s four industrial markets, and Lee & Associates’ industrial specialists report that quality available space of virtually any size is drawing multiple offers. Anything with a loading dock and 18 feet of clear height will excite user interest. It follows then that the lack of supply has anxious decision makers willing to accept space that leaves some boxes unchecked.
The last four quarters countywide rents gained 11.6%, the most since 2016-17.
Lee & Associates surveyed 275.5 million SF in 8,257 buildings of at least 10,000 SF.
North County, the largest market with 42% of county inventory, posted 825,995 SF of net absorption in the third quarter. It was the second most growth since late 2004. The vacancy rate fell 50 basis points, settling at a record 1.2%. Year-to-date-net growth totaled 1.2 million SF.
There was 543,009 SF of net absorption in the 73-million-SF Airport market in the third quarter with 1.3 million SF of tenant expansion year to date. There has been more than 1.5 million SF in positive absorption over seven of the last eight quarters.
The vacancy rates in South County and West County each fell 50 basis points in the third quarter to 3.4% and 2.7% respectively.
In the 42.5-million-SF South County market there was 223,632 SF of tenant growth, which has been positive in three of the last four quarters and totaled 598,101 SF.
In West County, which also includes 42.5 million SF of space, net growth in Q3 totaled 212,380 SF, the most since late 2018. Tenant growth has been in the black for four straight quarters, totaling 642,000 SF.
The largest lease in the quarter was for a 246,622-SF building on West Warner Avenue in Santa Ana by Cloud Mountain at 88 cents per SF for five years.
Investors paid $83.6 million, or $252 per SF for a 331,376-SF distribution building on Plaza Drive in Cypress.
MARKET FORECAST
The state unemployment rate is projected to average 7.8% in 2021 and 6.4% next year, a marked improvement from last year but still well above than the forecasted U.S. average of 5.7% in 2021 and 4.3% in 2022.