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SANTA ANA, CA—For the geographically impaired, Orange County is a short 40-minute drive southeast from Los Angeles. Home to 34 cities, OC has a more youthful lifestyle than Los Angeles does, owing in large part to the presence of UC Irvine, according to Tim Hayes, executive director of AIR, a commercial real estate association serving SoCal and for the past 15 years an Xceligent data partner. "Orange County is a much newer community," he says. (Xceligent is a GlobeSt.com Thought Leader.)

While you might wonder what a youthful vibe has to do with industrial, it speaks directly to workforce as well as to a major shift taking place in the OC industrial market—the adaptive re-use of older industrial space for the so-called creative industries, primarily tech. "Over the past 15 or 20 years, they've done away with a lot of both single-family residential and industrial and turned that into creative space," says Matt Nelson, regional director of Xceligent.

It should be noted that OC is a much smaller industrial market than L.A.—by two-thirds. "The total L.A. County industrial stock—of buildings more than 10,000 square feet—is 19,389," says Hayes, bringing the total square footage to 816 million. By contrast, OC has just 7,638 buildings larger than 10,000 feet, accounting for nearly 61 million square feet.

But owing at least in part to the conversion of some older industrial spaces, OC in this upcycle is experiencing some of the same dynamics of its neighbor to the north. "Those newer creative spaces are being built where it used to be industrial or where land would have been available for industrial builders," says Nelson. "And so, as in Los Angeles, it's a challenge to make new developments pencil out." (For our first report in the series, covering Los Angeles, click here.)

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"In our advisory board meetings, brokers tell us that they have a ton of folks with money and the ability to get money but in a market with a 2.2% vacancy rate, there's just very little product out there," he continues. "That's from the owner/user as well as the investor standpoint." As in L.A., owners are opting to ride the upcycle rather than dispose.

That's not to say deals aren't getting done, and Nelson reports that it's been a "fairly active market. In Q3 there were probably 25 good sales in Orange County, ranging from a low of $80 per square foot to $225 on the high end. But while there are big deals, there's a lot more money that would love to do deals but they just can't find the product they want."

And leasing is equally active, and equally constrained by the availability of product. That 2.2% vacancy rate ended a third quarter that brought a little over 1 million square feet of absorption to the county, according to Xceligent's most recent Market Report.

Who's leasing what? According to the report, the big five for the quarter were:

• Goodwill of Orange County's 154,040-square-foot deal at 1231 Warner Ave. in Tustin;
• St. George Logistics taking 140,103 square feet at 5900 Skylab Rd. in Huntington Beach;
• Robinson Pharma, which signed for 126,796 feet at 2811 S. Harbor Blvd., in Santa Ana; and
• EVGA's 107,942 feet at 408 Saturn St. in LaBrea.
• Disney is also snatching up warehouse space in OC as well as in L.A. and the Inland Empire. But as Hayes reports, the entertainment company is so closeted about its deals that getting an accurate read is nigh-to impossible.

But much like investors' scramble to find the right space, so it is with tenants. The Market Report shows that the preponderance of available space throughout the county is in facilities of less than 5,000 feet:

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The major difference in the type of renters you'll see in OC as compared to L.A. is the emphasis here on R&D, warehousing (as is the case in most of the top five) and, as Nelson points out, "a lot of pharma and medical uses. This differs from L.A., where a lot of the activity is centered on manufacturing."

So what's the outlook? Do Hayes and Nelson see the same two-year timeframe for the upcycle that they gave to L.A? Not quite—and that's good news for O.C.

"If you look at Orange County historically, it's so attractive as a destination for business—as well as for other aspects of the real estate market," says Hayes. "Orange County always seems to do OK, even in a real down market. When we see the Los Angeles or Inland Empire vacancy climbing, OC seems to remain fairly stable."

So clearly, the outlook is positive for the foreseeable future…and possibly beyond.