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9/21/23
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This report provided by real estate services firm Kidder Mathews
MARKET HIGHLIGHTS
• Direct vacancy rate, which is currently at 2.0%, is still reasonably low.
• Market rental average increased by 18% from year-to-year, reaching $1.73/SF, on a NNN basis.
• The average sale price in Q3 2023 was $336.85/SF, while the cap rate was 6.5%.
Market Drivers
As of the third quarter of 2023, the Orange County industrial market is still limited. It is starting to show indications of stabilization after several years of heightened demand. Even though there is a probability that demand has softened, the main hot spots are still competitive. Among the top 50 industrial locations in the US, the Orange County market has the third-lowest direct vacancy rate at 2.6%, indicating that this market is becoming increasingly saturated.
Due to the lack of available inventory, real estate prices have not decreased, allowing rental rates to remain stable for the year. Rents are holding steady in some submarkets or even increasing; reports indicate that the average rent of $1.73/SF NNN exceeds that of the Inland Empire and Los Angeles markets. Rates tend to remain stable since companies prefer the status quo, and the lease renewal market is still strong and consistent.
This year, a substantial portion of pre-leased inventory will be completed, resulting in significant net absorption as tenants move in, partially offsetting the more significant occupancy losses among the older, existing inventory.
Economic Review
Orange County's economy is anticipated to keep growing in 2023 as it recovers from the pandemic, which will help fuel demand for industrial space, particularly for e-commerce and logistics. Due to its closeness to significant Southern California consumer markets, Orange County is well-situated for e-commerce distribution sites. The county is a business-friendly area with a steady workforce, a sizable consumer base, and a key location near ports, airports, and industrial rates that are less expensive than Greater Los Angeles and the Inland Empire.
The industrial sector, which accounts for around 10% of jobs in Orange County, is a major driver of the local economy because of the growth of e-commerce and the need for more warehousing space.
Near Term Outlook
Tech-Driven Innovations: It is projected that automation, robots, and innovative technologies will continue to impact the industrial market. Businesses will likely improve logistics and storage processes to enhance productivity and save expenses.
The industrial market in Orange County is expected to grow in 2023. The substantial demand for industrial space is anticipated to continue, as will the low vacancy rate and rising rents. Rising interest rates and economic uncertainty are among several of the market's potential stumbling blocks.
The information in this report was composed by the Kidder Mathews Research Group and Kidder Mathews Director of Research Gary Baragona. Data source: CoStar.
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