Space remains scarce in Orange County, with the vacancy rate hovering around .... industries, including information, tec
Research & Forecast Report
ORANGE COUNTY | INDUSTRIAL Q2 2016
Accelerating success.
>> Rents Rise As Industrial Space Remains Scarce Key Takeaways
> Average asking rents continue to rise, up $0.04 PSF NNN (4.2%) over the previous quarter.
Market Indicators | Relative to prior period
> Industrial demand was positive 449,200 SF of net absorption recorded.
Net Absorption
> 379,200 SF of new construction delivered to the Airport Area and North County submarkets. Much of this space was pre-leased prior to construction completion.
Rental Rate
> The vacancy rate remains near historic lows at only 2.9%. Quality industrial space is increasingly hard to find in the Orange County industrial marketplace. > As market conditions remain tight and quality industrial space remains scarce, it is expected that asking rental rates will rise by another 3% to 4% by year-end 2016.
Orange County Industrial Market
Orange County industrial market conditions remain at historically healthy levels. Although there is a strong demand for new industrial buildings, developers are challenged with finding available infill sites and rising development costs. As a result, many industrial properties are being sold as land for multi-family residential redevelopment or converted to creative office projects as a lower cost alternative. Industrial product is expected to continue to deplete. The industrial market has evolved to handle niche technology hub industries and specialty retail. The market is focused on smaller value-add manufacturing buildings that have a large R&D component. As such, rents for industrial space tend to be higher in Orange County compared to neighboring markets.
Q2 2016
Forecast
Vacancy Construction
Summary Statistics | Orange County, Q2 2016 Vacancy Rate
2.9%
Change from Q1 ‘16 (Basis Points)
-20 BPS
Net Absorption
449,200
Construction Completions
379,200
Under Construction
41,700
Asking Rents | Orange County, Q2 2016 Orange County Industrial Market Average Asking Rent
$0.74 NNN
Change from Q1 ‘16
$0.03
Y.O.Y. Change (%)
7.3%
Orange County Labor Force | Orange County, Q2 2016 Construction
Manufacturing
Transportation, Trade & Utilities
12-mo Employment Growth (%)
16.7%
-0.89%
2.3%
12-mo Actual Employment Change
14,700
-1,400
6,000
ORANGE COUNTY | INDUSTRIAL
> In second quarter, total vacancy rate for Orange County industrial space increased 20 basis points from last quarter to 2.9%.
Historical Vacancy v. Rents | O.C. Market Q2 ‘12-’16 $0.75
> This quarter there was 379,200 SF of space delivered to the market, which had a minimal impact on the vacancy rate. > FORECAST: With only 41,700 SF of space remaining under construction and strong industrial demand, vacancy rates are expected to remain at historic low levels.
$ PSF PER MONTH (NNN)
> Space remains scarce in Orange County, with the vacancy rate hovering around the all time low of 2.9%.
Rents
6%
Vacancy
$0.70
5%
$0.65
4%
$0.60
3%
$0.55
Absorption and Leasing Activity
% VACANT
Vacancy
Q2 2016
2% 2Q12
2Q13
2Q14
2Q15
2Q16
> The Orange County industrial market recorded positive net absorption of 449,200 SF.
> Among the leases signed this quarter were Bunzl Distribution expanding into 319,200 SF at 5701 Skylab Rd in Huntington Beach, Kuehne+Nagel, Inc. taking 300,000 SF at 3454 E Miraloma Ave in Anaheim and Airborne Systems taking 159,200 SF at 3100 W Segerstroom Ave in Santa Ana. > FORECAST: Net absorption is expected to remain positive as new inventory remains scarce.
Net Absorption by Submarket | O.C. Market Q2 ‘12-’16 500,000
300,000 200,000
0
AIRPORT
(57,400)
SOUTH
WEST
NORTH
Historical Leasing Activity | O.C. Market Q2 ‘12-’16
> Average asking rates were highest in the South County submarket at $0.94 PSF NNN and lowest in the North County submarket at $0.69 PSF NNN.
5,500,000 5,000,000 4,500,000
SQUARE FEET
> FORECAST: Tenant demand for industrial space is strong and supply is limited. Asking rental rates will continue to trend upward by 3% to 4% by year-end 2016.
(76,000)
(200,000)
> The weighted average asking rental rate for Orange County recorded at $0.74 per square foot (PSF) NNN, up from $0.71 PSF NNN from last quarter. > Rents have steadily risen over the past three years as industrial tenant supply options remain limited.
174,800
100,000
(100,000)
Rental Rates
407,820
400,000
SQUARE FEET
> North County recorded the largest amount of net absorption for the second consecutive quarter at 407,820 SF. Most of this space stems from Bunzl Distribution expansion of 319,200.
4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 2Q12
2
2Q13
2Q14
2Q15
2Q16
ORANGE COUNTY | INDUSTRIAL
> During second quarter, 379,200 SF of space was delivered to the market, which included the Imperial Distribution Center in Brea. The building is partial leased to Atosa Catering Center. 2830 S Fairview St in Santa Ana also delivered, which is currently listed for sale. > One project is currently under development, 14382 Astronautics Ln in Huntington Beach, a 41,700 SF building. > FORECAST: Industrial development is a challenge in Orange County as many industrial properties and development sites are converted to residential and other commercial uses.
Historical Net Absorption & Construction Completions Q2 ‘12-’16
Net Absorption
Completions
1,000,000 750,000 500,000 SQUARE FEET
Construction
Q2 2016
250,000 (250,000) (500,000)
Investment Trends
> Investment activity for industrial properties slowed during second quarter. Sales volume recorded $238.8 million compared to $255.1 million one year ago. > Investors are expected to remain bullish in the Orange County market as available supply remains limited.
(750,000) (1,000,000) 2Q12
2Q13
2Q14
2Q15
2Q16
Investment Trends Chart 2010-2016
> Since 2014, the price per square foot for industrial product has increased by approximately 13%.
$160.00
8.0%
$140.00
7.0%
> FORECAST: 2016 is on pair with the same investment climate seen in Orange County during the past three years.
$120.00
6.0%
$100.00
5.0%
$80.00
4.0%
$60.00
3.0%
$40.00
2.0%
$20.00
1.0%
Outlook
The Orange County industrial market continues to move forward with positive momentum. There is only one industrial building under construction that is expected to be completed by end of year 2016. With minimal increase in supply, asking rental rates are expected to continue to climb as we approach peak values of $0.78-$0.80 PSF NNN set in early 2008.
$0.00
0.0% 2010
2011
2012
2013
$/PSF
2014
2015
2016
Cap Rate
Unemployment Rate | U.S., C.A. & O.C. | May 2016 6.0% 5.2% 5.0%
4.7%
4.0%
3.6%
3.0% 2.0% 1.0% 0.0% United States
3
California
Orange County
ORANGE COUNTY | INDUSTRIAL
Q2 2016
Market Description
Orange County industrial market is a large market comprised of 192.8 million SF representing 17% of the total industrial space in the greater Los Angeles Basin. Most of the space (68%) is in small to medium sized buildings, with the balance in big box space (100,00+ SF). The market includes many mid-sized manufacturers and distributors from a wide array of industries, including information, technology, electronics, food, apparel and communications. These firms pay a premium to be in the midst of Orange County's highly educated labor force and concentration of high-end firms and distributors.
Submarket Map
RECENT TRANSACTIONS & MAJOR DEVELOPMENTS Orange County Industrial Market Q2 2016
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
6280 Artesia Blvd, Buena Park
218,640 SF
$25,500,000
$116/PSF
Greenlaw Partners
SHA Enterprises Inc.
1650-1652 N Kraemer Blvd, Anaheim
122,600 SF
$16,700,000
$136/PSF
LBA Realty
Duke Realty Corporation
12472 Edison Way, Garden Grove
55,600 SF
$9,447,920
$170/PSF
King Shocks
LBA Realty
1562 Reynolds Ave, Irvine
62,900 SF
$9,035,000
$143/PSF
sTec, Inc.
Elpac Electronics, Inc.
6530 Altura Blvd, Buena Park
67,400 SF
$9,000,000
$133/PSF
99 Ranch Market
Heitman
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
3310-3250 Miraloma Ave, Anaheim
319,200 SF
Expansion
Distribution
Bunzl Distribution
Clarion Partners
3454 E Miraloma Ave, Ahaheim
300,000 SF
Direct - New
Distribution
Kuehne+Nagel, Inc.
TIAA
3100 W Segerstrom Ave, Santa Ana
159,200 SF
Direct - New
Distribution
Airborne Systems
SVF Segerstrom
1225 W Imperial Hwy, Brea
126,700 SF
Direct - New
Distribution
Atosa Catering Equipment
Clarion/Pacific Industrial
14520 Delta Ln, Huntington Beach
115,900 SF
Direct - New
Distribution
Rocket Lab, USA, Inc.
JP Morgan
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
14382 Astronautics Ln, Huntington Beach
Burke Commercial
41,700 SF
West County
Under Construction
4Q 2016
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
ORANGE COUNTY | INDUSTRIAL
EXISTING PROPERTIES Submarket/ Building Size
Bldgs
Total Inventory SF
CONSTRUCTION
VACANCY
Completions Under Vacancy Current Qtr Construction Vacancy Prior Qtr SF SF
Q2 2016
AVAILABILITY
Availability
ACTIVITY
ABSORPTION
Total Gross Total Gross Net Sales Number of Lease Number Activity Current Activity Absorption Activity SF Sales Activity SF of Leases Qtr SF YTD SF Current Qtr SF
RENTS
Net Absorption YTD SF
Weighted Avg Asking Lease Rates
AIRPORT 1 - 9,999
388
2,773,600
0
0
0.8%
1.4%
3.2%
16,100
3
19,800
7
35,900
102,000
14,900
11,400
$1.03
10,000 - 39,999
1,200
22,600,558
12,000
0
1.7%
1.6%
3.0%
80,200
5
341,000
16
421,200
717,900
(8,300)
(39,100)
$0.94
40,000 - 69,999
154
7,732,027
0
0
1.2%
1.9%
3.6%
46,400
1
72,000
3
118,400
351,600
49,300
101,900
$0.76
70,000 - 99,999
68
5,546,597
0
0
4.0%
4.4%
8.1%
0
0
97,490
2
97,490
226,090
23,000
(56,500)
$0.71
100,000 +
73
12,356,804
0
0
10.5%
9.2%
9.3%
0
0
343,400
4
343,400
1,033,000
(154,900)
(250,800)
$0.67
1,883
51,009,586
12,000
0
3.9%
3.8%
5.1%
142,700
9
873,690
32
1,016,390
2,430,590
(76,000)
(233,100)
$0.77
$0.86
SUBTOTAL NORTH 1 - 9,999
520
3,697,161
0
0
1.4%
1.5%
2.7%
40,100
7
56,300
18
96,400
229,400
2,100
(29,400)
10,000 - 39,999
1,799
32,997,257
0
0
1.0%
0.9%
2.6%
135,900
7
267,400
9
403,300
801,100
(28,980)
63,420
$0.77
40,000 - 69,999
246
12,726,013
0
0
0.9%
1.3%
2.9%
148,700
3
11,200
1
159,900
235,400
54,400
(50,500)
$0.64
70,000 - 99,999
89
7,027,569
0
0
2.7%
1.3%
2.3%
0
0
68,800
1
68,800
256,500
(96,500)
(28,300)
$0.90
100,000 +
148
30,410,474
367,200
0
4.2%
5.8%
4.3%
0
0
604,100
3
604,100
936,300
476,800
599,700
$0.62
2,802
86,858,474
367,200
0
2.2%
2.7%
3.2%
324,700
17
1,007,800
32
1,332,500
2,458,700
407,820
554,920
$0.69
1 - 9,999
226
1,458,221
0
0
0.9%
1.5%
3.8%
3,800
1
26,600
8
30,400
79,100
8,900
900
$1.15
10,000 - 39,999
393
7,524,519
0
0
2.2%
2.5%
5.3%
0
0
200,000
6
200,000
364,700
21,900
60,000
$1.09
40,000 - 69,999
46
2,305,415
0
0
2.3%
2.3%
4.6%
0
0
17,400
0
17,400
57,500
0
(1,900)
$0.80 $0.74
SUBTOTAL SOUTH
70,000 - 99,999
17
1,388,276
0
0
6.0%
6.0%
14.5%
0
0
0
0
0
0
0
0
100,000 +
43
8,385,775
0
0
6.0%
4.9%
5.0%
0
0
164,200
1
164,200
337,000
(88,200)
(68,000)
$0.91
SUBTOTAL
725
21,062,206
0
0
3.9%
3.6%
5.6%
3,800
1
408,200
15
412,000
838,300
(57,400)
(9,000)
$0.94
WEST 1 - 9,999
285
2,036,487
0
0
0.7%
0.4%
1.8%
58,100
9
10,000
3
68,100
79,200
(5,100)
20,400
$0.96
10,000 - 39,999
711
12,259,732
0
0
1.5%
1.9%
4.9%
137,000
7
146,100
8
283,100
489,000
48,000
101,700
$0.88
40,000 - 69,999
100
5,250,522
0
41,668
4.2%
4.5%
5.8%
122,900
2
6,500
1
129,400
332,500
15,600
(85,600)
$0.70
70,000 - 99,999
32
2,530,380
0
0
1.2%
3.8%
7.2%
0
0
95,500
1
95,500
95,500
66,300
66,300
$0.68
100,000 +
54
11,754,010
0
0
3.0%
3.4%
5.1%
0
0
480,800
3
480,800
698,300
50,000
161,900
$0.67
1,182
33,831,131
0
41,668
2.3%
2.9%
5.1%
318,000
18
738,900
16
1,056,900
1,694,500
174,800
264,700
$0.76
SUBTOTAL MARKET TOTAL 1 - 9,999
1,419
9,965,469
0
0
1.0%
1.2%
2.6%
118,100
20
112,700
36
230,800
489,700
20,800
3,300
$0.98
10,000 - 39,999
4,103
75,382,066
12,000
0
1.4%
1.4%
3.3%
353,100
19
954,500
39
1,307,600
2,372,700
32,620
186,020
$0.89
40,000 - 69,999
546
28,013,977
0
41,668
1.7%
2.1%
3.7%
318,000
6
107,100
5
425,100
977,000
119,300
(36,100)
$0.71
70,000 - 99,999
206
16,492,822
0
0
3.2%
3.1%
6.1%
0
0
261,790
4
261,790
578,090
(7,200)
(18,500)
$0.74
100,000 +
318
62,907,063
367,200
0
5.4%
5.9%
5.6%
0
0
1,592,500
11
1,592,500
3,004,600
283,700
442,800
$0.68
6,592
192,761,397
379,200
41,668
2.9%
3.1%
4.3%
789,200
45
3,028,590
95
3,817,790
7,422,090
449,220
577,520
$0.74
TOTAL
Note: revisions to the inventory base were made effective Q2 2016, historical data reported here reflect these revisions and may not match data reported in previous quarters.
5
ORANGE COUNTY | INDUSTRIAL
Q2 2016
Definitions of key terms in this report Total Rentable Square Feet: Industrial space in buildings with 1 SF or more of industrial space. Includes speculative as well as owner-occupied buildings. Excludes Research & Development (R&D) buildings (industrial buildings with at least 30% office build-out, 3/1000 parking ratio and a high level of finish). Excludes space that is under-construction or renovation. Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease, for sublease or for sale, plus space that is vacant but not available for direct lease or sublease. Availability: All space that is being currently marketed for occupancy, includes space which may be currently occupied or which may be under construction or renovation. Net Absorption: Net change in occupied square feet from one period to the next (includes the impact of change in vacant space available for sublease). Gross Activity: Square feet sold and leased for all known transactions completed during the quarter. Excludes lease renewals. Excludes investment sale transactions. Weighted Average Asking Rental Rates: Weighted by square feet available for direct lease. Data is based on triple net rents, and excludes expenses such as taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per SF basis. Construction Completions: Total square feet added during the quarter via construction completions, including renovated space returned to market, less total square feet taken off-market due to demolitions or conversions. Under Construction: Includes buildings that are in some phase of construction, beginning with foundation work and ending with the issuance of a Certificate of Occupancy.
Technical Note Colliers International is continuously refining its database. The data shown in the historical tables and graphics in this report have been adjusted to take into account these changes in the database. This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This report and other research materials may be found on our website at www. colliers.com/greaterlosangeles.
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> Over 16,100 professionals
UNITED STATES: Orange County Office License No. 00813140 3 Park Plaza, 12th Floor Irvine, CA 92614
MARTIN PUPIL President, Western Region CAITLIN MATTESON Research Director Research Services
6
> $2.5 billion in annual revenue > 2.0 billion square feet under management
TEL: +1 949 474 0707 FAX: +1 949 724 5600
ROBERT CAUDILL Regional Director/O.C.
