2nd Quarter OC Commercial Real Estate Report

Availability continued its descent from the high rates of 2009, vacancy rates trended downward, and net absorption was positive for four consecutive quarters.  

 

Here is our 2nd quarter market summary: 

• Encouraging Numbers 

 

The Orange County industrial  market made several leaps on the path to recovery in the second quarter of 2011.

 

 

Both vacancy and availability continued their descents, making the second quarter the sixth consecutive quarter of decreases. Net absorption also continued its positive streak, posting nearly 3.3 million square feet of positive absorption from the second quarter of 2010 to the second quarter of 2011, even greater than the streak seen in the height of the market, from the fourth quarter of 2006 to the fourth quarter of 2007, which totaled only 2.3 million square feet.

 

 

While these are very positive indicators, demand, ultimately influenced by employment and overall economic stability, will need to be sustained in coming quarters for the Orange County industrial market to continue its pace of recovery.

• Vacancy 

Direct / sublease space (unoccupied) finished the quarter at 5.13%, the lowest figure seen in two years and a decrease of over 16% compared to the second quarter of 2010. The West County submarket presented the lowest vacancy rate in the county, at 3.91%.

• Availability

Direct / sublease space being marketed came in at 9.22% for the second quarter of 2011, a drop from the 9.28% seen in the previous quarter and a decrease of nearly 15% from 2010’s rate of 10.83%.

• Lease Rates 

 The average asking triple-net lease remained steady at $.52 per square foot per month, unchanged from the previous quarter but a two-cent decrease compared to the same quarter last year. The South County submarket posted the highest average asking lease rate in the county at $.65. The record high rate of $.80 was established in the first and second quarters of 2008.

• Sales Pricing 

 The average asking sales in the second quarter of 2011 was $130.51, an increase from the previous quarter’s rate of $126.56 but still under 2010’s second quarter rate of $131.92. The record high asking rate of $181.23 was established in the third quarter of 2007.

• Absorption 

 The Orange County industrial market posted nearly 1.1 million square feet of positive net absorption in the second quarter of 2011, the highest figure seen since the fourth quarter of 2005.

• Transaction Activity

Leasing activity for the second quarter of 2011 checked in at 1.75 million square feet, a decrease from the prior quarter’s number of 2.53 million square feet and less than half of 2010’s second quarter figure of 3.8 million square feet. Sales activity also displayed a decline, posting 1.05 million square feet compared to 1.21 million square feet in the first quarter of 2011 and 1.68 million square feet in the second quarter of 2010. Details of the largest transactions can be found on the back page of this report.

• Employment

The unemployment rate in Orange County was 8.5% in May 2011 — down from a revised 8.6% in April 2011 and below the year-ago estimate of 9.2%.

This compares with an unadjusted unemployment rate of 11.4% for California and 8.7% for the nation during the same period. According to the State of California Employment Development Department, Orange County saw a net increase of 1,900 payroll jobs from May 2010 to May 2011.

The largest gross were 9,700 in leisure and hospitality and 2,900 in educational & health services; however, Orange County lost 5,600 government jobs during that same period. Chapman University is forecasting that 20,000 jobs will be added in Orange County in 2011.

• Overall

We are seeing continued decreases in both vacancy and availability and consequential increases in net occupancy, which is contributing to the stabilization of lease rates.

However, both sale and lease activity have slowed in the last quarter. While we expect to see increases in investment activity as lenders continue to dispose of distressed assets and increases in leasing activity as short- term leases come up for renewal, job creation will need to continue to drive the demand needed to sustain growth in the Orange County industrial market.

To view the full report, click here.