WESTERN SNAPSHOT, JUNE 2004

ORANGE COUNTY INDUSTRIAL MARKET

The majority of Orange County industrial development is concentrated in smaller condominium projects with units ranging from 1,500 to 10,000 square feet. More than half of the 258 new units in this product class in south Orange County have been sold or leased in the last year. This development, coupled with low interest rates, has resulted in smaller tenants lowering their long-term occupancy costs by purchasing rather than leasing.

“The industrial market has experienced a very high level of demand for buildings for sale,” says Clyde Stauff, senior vice president at Colliers Seeley International in Anaheim, California. Users/buyers are paying record prices due to favorable financing, with units selling for as much as $220 per square foot on a cold shell.”

Located at the intersection of the 405 and 5 freeways, the most active industrial submarket is the Irvine Spectrum, where complexes such as the Koll Center and Wald Business Center feature facilities geared toward smaller industrial and R&D firms. The two centers feature a combined total of 31 buildings and 191,000 square feet of space.

In Huntington Beach, California, the 38-acre McDonnell Centre Business Park features a range of industrial offerings. Two new buildings in the park were build-to-suits for Morgan Metals and Cleveland Golf, and Burke Development is constructing five speculative buildings ranging in size from 16,800 to 62,700 square feet.

“Building-for-sale inventory is very limited due to the lack of available land for new construction,” says Stauff. “The Spectrum and Huntington Beach locations had the only large parcels available for development.”

Centra Development, which is completing the second phase of a 205,000-square-foot, 32-building project in Lake Forest, California, and Low Development, which is the developer of the 14-building Wald Business Center in the Irvine Spectrum, are new to Orange County. Stauff says that the small condo developers primarily target smaller entrepreneurial firms that distribute high-end electronic and home-furnishing products.

Orange County’s industrial vacancy rate is around 7 percent. The central and west submarkets have the lowest vacancy with rates less than 5 percent. Smaller units — those less than 40,000 square feet — have the lowest vacancy.

Orange County industrial NNN lease rates range between 55 and 70 cents per square foot for a less than 50,000-square-foot property and 45 and 52 cents per square foot for a larger box. R&D space fetches between 75 cents and $1 per square foot for facilities in the smaller category and 65 to 75 cents per square foot for larger product.

Heritage Fields, the 3,600-acre former El Toro Marine Corps Air Station, will be the area to watch once it’s auctioned off later this year, Stauff says. Located at the Santa Ana (5) Freeway and Sand Canyon, the redevelopment will allow for approximately 1.6 million square feet of new industrial and R&D uses. It will have a major impact on south Orange County’s industrial sector, no doubt mitigating the effects that low land availability has had on new industrial development, rental rates and sales prices.

— Clyde Stauff is a senior vice president at Colliers Seeley International in Anaheim, California.


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