From 2008 to present, about a third of the industrial properties that were acquired were for uses other than traditional industrial uses, he says. “During that time, it became clear that, even during a recession, people would provide financial support to their churches and spend money on their children's recreational activities.”

Recreation facilities began to take over industrial product, such as a large volleyball club that took 160,000 square feet, as well as a couple of gymnastics and trampoline facilities, he adds.

“As the economy began to improve, mini-storage and multifamily developers began to acquire industrial product to demolish in order to build their products,” Hartel says. “More recently, creative office space has begun to move into the industrial base, as owners convert industrial product into creative office spaces.”

Today, he notes, the impact of this activity is rearing its head, and the result is that there is little to no available industrial product left in the Orange County Airport area.

In fact, he notes that industrial buildings available for sale make up less than 1% (.07%) of the inventory in the Orange County Airport Area submarket. The overall vacancy is at 3% trending downward to be less than 3% by year end, he adds.

“In the past, these vacancy rates might have produced less concern as developers would build more product, but with the absence of land for development, we have had little to no industrial development in the last six years.”

Historically, the cue for developers to begin spec development was when vacancy dropped below 10%, he explains. “However, developable land is scarce in the county, and in areas where land still exists, such as the former MCAS bases in Tustin and El Toro, developers are focused on residential, creative office, retail and higher-end R&D product.”

And today, when an industrial broker facilitates a transaction that results in an alternative use for industrial product, that product never returns to market, he explains. For example, he points out that when a broker assists a residential developer in acquiring land or an industrial building, that real estate is removed from the industrial inventory base, further compounding the pressure on the vacancy.

What does this mean for the Orange County market? According to Hartel, “it means that the value of existing industrial product will continue to rise, and that industrial brokers will need to become increasingly nimble in order to find their next transaction.”

The bottom line is this, he says. “Industrial values are high and will only go higher in this supply-constrained market.”

Stay tuned for part two of this exclusive Q&A with Voit, where Frank Geraci an EVP at Voit Real Estate Services reviews what's in store for industrial in the Inland Empire.