Industrial is the bright side of the market. Vacancy is at 2.5%, a record low, and rental rates are higher than they were in 2007 at the peak. We're seeing rates 15% over last year. It's also a matter supply and demand. In L.A., vacancy for industrial is under 1%, so our vacancy will continue to go down, especially since a lot of products have been taken off the market to build multifamily. Land prices for more new industrial don't make sense, so it's a great product type that's doing quite well. It's an attractive investment because people see nothing but increasing rates over the next few years. E-commerce has really pushed occupancy—more so in the Inland Empire than here, but also here.

In multifamily, it looks like rents are up 6.5% from a year ago. Orange County's unemployment rate, which has a lot to do with rentals, is 4.5%, which is better than the state. We have a very diversified economy in Orange County, and there's a lot of demand still for housing. Most of the new construction is located in South County—Irvine and Anaheim. Occupancy is 96.1%, and the median home price for Orange County is above $700,000. We're among the top metros in the nation; yet we have the lowest homeownership rate of less than 50%.

GlobeSt.com: Which sector do you predict making the most rental growth in the next year?

May: I think industrial because it's purely a demand/supply situation—with vacancy so low and products being taken off the market, combined with the trend toward e-commerce and being adjacent to L.A., which is under 1% vacant. Industrial continues to have an upside. We're at 97 cents per square foot, which is just over the peak of 2008. It's taken a long time to get here, but it continues to go up, and the same holds true with the sales part of the business. A lot of companies are buying their own industrial buildings to be occupied by the user; the demand for that is incredible. But you can't find anything to buy, so that bodes well for the lease cycle.

GlobeSt.com: Which sector's rental growth do you predict will slow down the most over the next year?

May: Office. Demand is lacking in office to push rates. There are a couple trends going on. First, companies are taking less space. There were some recent acquisitions in Orange County: Broadcom was acquired, QLogic was acquired. In most cases, after acquisition occurred all those companies downsized. This creates more vacancy, and rents don't go up as fast because you have more people in less space. We also have parking needs in Orange County and can't put too many people in one space because we don't have the parking for it.

GlobeSt.com: What else should our readers take away from your Q3 stats?

May: There's less quality office space, so landlords can hold out for a higher rate, but there are still B and C buildings that will be aggressive to attract tenants. It depends on what you want to pay; it's out there, but if you want location and quality, will pay a higher price.

ORANGE COUNTY, CA—Industrial is still the darling of the Orange County market, thanks to supply/demand issues, while office trends have tenants taking less space and using it more efficiently, NGKF's regional director Greg May tells GlobeSt.com. Following the release of the firm's Q3 reports for Orange County, we spoke exclusively with May about trends he is noticing across the sectors and where he sees strengths and weaknesses in this market.

GlobeSt.com: What are the main rental trends you are noticing in Orange County's retail, industrial, office and multifamily sectors as of Q3?

May: For retail, it looks like we're getting close, but we're still not at our peak rental rates of 2008. We are close to hitting the peak of the last cycle; rents went up 4% over a year ago. This will continue, and Ii predict we will be at peak rents next year. A lot of areas like Irvine are becoming urbanized with development going on, and this creates more foot traffic. It does well for retail and nearby shopping centers. In the Irvine Business Complex, rents are going up, and this will push vacancy down—vacancy is currently at 4.1% for retail in Orange County—even though everybody is going online to buy things. This is definitely impacting big box, but other retail users are taking that space.

Office rates have continued to go up. The velocity of increasing rates has slowed down, but rents are at about a 3% increase from a year ago. Rental rates are still below what we saw at peak for fourth-quarter 2007, and we will probably hit those peaks in the next year, but vacancy has come down quite a bit. It's at 10.6% and has been declining over the last eight consecutive quarters. I think the reason for this is we're not dependent on one industry in Orange County like we were in the last cycle, where mortgage companies controlled a lot of the space. We're a much more diverse economy here now, and occupants of these spaces are tech and healthcare, financial services, legal and accounting. It's more diversified and healthy. Also, construction is going up, but much less than the last cycle. We had 1.2 million square feet under construction in Q3, which is very low and shouldn't hurt us like in other cycles when they overbuilt. The space that's being delivered is leasing up quickly: the Irvine Co.'s 200 Spectrum, a 425,000-square-foot building that was delivered in first half this year, is already 80% leased to date. The Boardwalk is another example, but there is very little construction right now.

Industrial is the bright side of the market. Vacancy is at 2.5%, a record low, and rental rates are higher than they were in 2007 at the peak. We're seeing rates 15% over last year. It's also a matter supply and demand. In L.A., vacancy for industrial is under 1%, so our vacancy will continue to go down, especially since a lot of products have been taken off the market to build multifamily. Land prices for more new industrial don't make sense, so it's a great product type that's doing quite well. It's an attractive investment because people see nothing but increasing rates over the next few years. E-commerce has really pushed occupancy—more so in the Inland Empire than here, but also here.

In multifamily, it looks like rents are up 6.5% from a year ago. Orange County's unemployment rate, which has a lot to do with rentals, is 4.5%, which is better than the state. We have a very diversified economy in Orange County, and there's a lot of demand still for housing. Most of the new construction is located in South County—Irvine and Anaheim. Occupancy is 96.1%, and the median home price for Orange County is above $700,000. We're among the top metros in the nation; yet we have the lowest homeownership rate of less than 50%.

GlobeSt.com: Which sector do you predict making the most rental growth in the next year?

May: I think industrial because it's purely a demand/supply situation—with vacancy so low and products being taken off the market, combined with the trend toward e-commerce and being adjacent to L.A., which is under 1% vacant. Industrial continues to have an upside. We're at 97 cents per square foot, which is just over the peak of 2008. It's taken a long time to get here, but it continues to go up, and the same holds true with the sales part of the business. A lot of companies are buying their own industrial buildings to be occupied by the user; the demand for that is incredible. But you can't find anything to buy, so that bodes well for the lease cycle.

GlobeSt.com: Which sector's rental growth do you predict will slow down the most over the next year?

May: Office. Demand is lacking in office to push rates. There are a couple trends going on. First, companies are taking less space. There were some recent acquisitions in Orange County: Broadcom was acquired, QLogic was acquired. In most cases, after acquisition occurred all those companies downsized. This creates more vacancy, and rents don't go up as fast because you have more people in less space. We also have parking needs in Orange County and can't put too many people in one space because we don't have the parking for it.

GlobeSt.com: What else should our readers take away from your Q3 stats?

May: There's less quality office space, so landlords can hold out for a higher rate, but there are still B and C buildings that will be aggressive to attract tenants. It depends on what you want to pay; it's out there, but if you want location and quality, will pay a higher price.