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1/02/25
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This report was provided by real estate services firm Kidder Mathews
Market Highlights
• At the end of 2024, the direct vacancy rate is 4.4%.
• The market average was $1.59/sf/mo on a NNN basis
• The average sale price in Q4 2024 was $332.57/sf/mo, while the cap rate was 5.4%.
Market Drivers
The Orange County industrial market continues its cooling trend at the end of 2024, with moderate leasing activity resulting in a slight increase in vacancy rates. Despite this slowdown, Orange County remains among the top 20 industrial markets in the U.S. with a vacancy rate far below the national average. Although rental rents in neighboring submarkets have decreased, the Orange County industrial market has stabilized and grown more competitive.
Market fundamentals for Orange County industrial properties remain healthy despite the slowdown over the past two years. Orange County has over 3 million residents and 59 million visitors annually. Its geographic barriers, with the Pacific Ocean on one side and the Santa Ana Mountains on the other, make it difficult to find land suitable for new development. This has kept vacancy rates low, and there has been steady growth in property values in the last ten years, a trend expected to continue. The region’s strategic location appeals to larger companies and provides growth opportunities for smaller businesses. A diverse, stable labor pool further enhances its appeal.
Industrial space users—including logistics, distribution, and last-mile delivery services—see Orange County as a central hub between the Ports of Los Angeles and Long Beach and Downtown Los Angeles, Mid-Counties, and the Inland Empire.
Economic Review
Economic uncertainty will affect the future demand for industrial properties as business owners look for ways to minimize costs rather than invest in growth. Rising inflation, which results in increased interest rates, is the largest contributor to this uncertainty. However, Orange County's large and resilient economy is well-positioned to weather the storm.
Optimism is returning, fueled by substantial capital reserves poised to drive future growth. While vacancy rates are higher than in recent years, this is the result of several large developments coming online and companies finding ways to shed space to reduce expenses. Despite changes in the market, Orange County's industrial rents have remained relatively stable due to a continued perceived shortage of available space compared with other regions in the nation. Investors remain highly interested in Orange County’s industrial market, drawn by its dense population, limited land for new development, and proximity to the ports, Los Angeles, and Inland Empire.
Near Term Outlook
The overall transaction volume is increasing. However, it is slower than expected and lease rates will probably fall even further. Once the economy stabilizes, it will not take long to revert to peak pricing. There is simply not enough supply to satisfy the demand that comes from an economy the size of Orange County. Long-term challenges may include interruptions in the supply chain, a lack of available land, and the relatively built-out nature of Orange County, which restricts the potential for new, large-scale industrial developments. Evaluating the region's future industrial potential requires consideration of these factors, as the market remains strong.
The information in this report was composed by Kidder Mathews Director of Research Gary Baragona and the Kidder Mathews Research Group.
Data source: CoStar
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