Due to a decrease in vacancy rates, sales of industrial buildings have seen a significant increase in Orange County. At the same time, the area has also experienced an increase in lease rates for office buildings.
Industrial Space Sales on the Rise
During the quarter that ended on June 30, Orange County businesses leased out 1.4 million square feet of industrial space. As a result, vacancy rates reached a 20-year low resulting in increased sales prices. Ultimately, sales prices reached an all-time high of $183 per square foot during the quarter. This represents a 17.5 percent increase when compared to the spring quarter of 2014.
Over the past four years, the average sale price for industrial space increased by 45 percent, or nearly $57 per foot. This is equivalent to a $5.65 million price increase for a 100,000 square foot building. The previous record for industrial space cost in Orange County was $181, which was posted in 2007.
Interestingly, while the demand for industrial space has increased, the total square footage changing hands has fallen to its lowest levels since 2013. With less than one percent of industrial properties being put on the market, this lack of change is largely due to the lack of inventory available for sale. In fact, the vacancy rate fell to 2.95 percent, which represents a 17.8 percent decrease when comparing year-over-year data. Vacancy rates have been falling steady for the past three years.
During the spring quarter, 59 industrial properties sold for a total of $221 million. The biggest of these sales was a 155,000 square foot building on Nasa Street in Brea that sold for $21.1 million. When it comes to leased property, the average lease rate was 65 cents per square foot, which is up significantly from the 54 cents per square foot rate of 2011. The total amount of leased industrial space increased by 1.4 million square feet. Rents have also increased steadily since this 2011 with tenants renting 11.3 million square feet of space over the past five years.
Demand for Orange County Office Space on the Rise
Just as industrial space has seen an increase in sales, the demand for office space in Orange County has also grown. In fact, during the spring quarter, office vacancies fell to 11.1 percent, representing their lowest post-recession levels during which time they reached a peak of nearly 18 percent. Year-over-year data shows that vacancy rates were at 12.7 percent at the same time last year.
The low office space vacancy rates has resulted in an increase in lease rates for the ninth consecutive quarter, with the average lease rate being $2.18 per square foot. These figures represent a 9 percent increase when comparing year-over-year data. Rent costs have also gone up with an increase of 24 cents per square foot over the past four years. This is the equivalent of a $24,000 per month rent increase for a 100,000 square foot building. Despite these increases, office rents are still off from the $2.77 per square foot record achieved in 2008.
Despite the increases to rental prices, tenants took up nearly 443,000 square feet of office space during the spring quarter and landlords have filled at least 8.8 million square feet in office space since late 2010. This is the equivalent of filling 22 average 20-story buildings. Given the great demand for office space, it is not much of a surprise that Orange County developers had just under 650,000 square feet of offices under construction in the spring quarter.
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(all data current as of 11/22/2017)
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