GlobeSt.com: What is the remedy for so little space under construction in this market?

Dienstag: There was 758,555 square feet of newly delivered space to the market in 2016, and there is 222,737 square feet currently under construction. While these new buildings are definitely helping to create more space options for occupiers, it is not enough to be a panacea for the market. There is more than 900,000 square feet of planned industrial development in Orange County, which will further aid the lack of supply issue, if each project gets built. Due to the lack of available land for new development, more occupiers are expected to turn to older buildings that can be significantly renovated to provide the functionality needed today.

GlobeSt.com: What options do users seeking industrial space have in Orange County with vacancy so low and so little space coming on the market?

Dienstag: Landlords understand that occupiers have a limited number of space options, so they continue to raise rents, particularly for class-A buildings. Rents are comparable to the previous market cycle's peak, and these rate increases are not curbing demand. Many companies are electing to negotiate renewals 18 to 24 months prior to their lease expiration in order to reduce the risk of losing their existing space. Companies want to have operations in Orange County for very valid reasons. Not only does Orange County have a highly educated and talented workforce, which is a big attraction for businesses, but it also offers a very high quality of life. Industrial firms here are also located in close proximity to the Long Beach and Los Angeles ports. Orange County has a growing and evolving consumer base, which companies enjoy having in their backyard and many would miss if they moved to a different market. Taking all of this into account, occupiers will continue to compete for space because they understand the inherent value of being located in Orange County.

GlobeSt.com: What else should our readers know about this market?

Dienstag: While e-commerce might have its roots in urban markets, this industry is growing exponentially, including its presence in Orange County. In order to keep up with consumer demand of “same-day, same-hour delivery,” e-commerce firms are opening up additional distribution sites. Increasing demand from Orange County consumers can no longer be completely fulfilled from out-of-market distribution centers. If online retailers do not meet shopper expectations for soft goods, hard goods and perishable items, they run the risk of losing customers, thus providing motivation to expand their real estate footprints. Orange County is quickly becoming a key market for e-commerce firms to expand to, which has been one of the primary drivers of growth for the local industrial market.

IRVINE, CA—Due to the lack of available land for new industrial development, more occupiers are expected to turn to older buildings that can be significantly renovated to provide the functionality needed today, JLL senior research analyst Jared Dienstag tells GlobeSt.com. According to the firm's Q4 industrial report for Orange County, only 222,737 square feet of OC industrial space is under construction in a market with 1% vacancy. There were 59 large blocks (100,000 square foot or greater) of available space in 2009, 39 in 2012, 16 in 2016, and the number is anticipated to decline to 10 in 2017. In addition, 2016 finished with the highest year-end average rental rate on record.

We spoke with Dienstag about the report's takeaways and the remedy for so little space under construction in this market.

GlobeSt.com: What are the biggest takeaways from your Q4 OC industrial report?

Dienstag: Orange County is hands down one of the tightest markets in the nation with a record low vacancy rate of 1%. Active tenant requirements outpace the amount of vacant space, which creates a competitive environment among industrial occupiers in their search for space. The lack of available supply is magnified when focusing on the big-box market (spaces greater than 100,000 square feet). The market also recorded five consecutive years of rent growth, rising 41.5% from a monthly rental rate of $0.53 per square foot, triple net, at the end of 2011 to a current rate of $0.75 per square foot, triple net.

GlobeSt.com: What is the remedy for so little space under construction in this market?

Dienstag: There was 758,555 square feet of newly delivered space to the market in 2016, and there is 222,737 square feet currently under construction. While these new buildings are definitely helping to create more space options for occupiers, it is not enough to be a panacea for the market. There is more than 900,000 square feet of planned industrial development in Orange County, which will further aid the lack of supply issue, if each project gets built. Due to the lack of available land for new development, more occupiers are expected to turn to older buildings that can be significantly renovated to provide the functionality needed today.

GlobeSt.com: What options do users seeking industrial space have in Orange County with vacancy so low and so little space coming on the market?

Dienstag: Landlords understand that occupiers have a limited number of space options, so they continue to raise rents, particularly for class-A buildings. Rents are comparable to the previous market cycle's peak, and these rate increases are not curbing demand. Many companies are electing to negotiate renewals 18 to 24 months prior to their lease expiration in order to reduce the risk of losing their existing space. Companies want to have operations in Orange County for very valid reasons. Not only does Orange County have a highly educated and talented workforce, which is a big attraction for businesses, but it also offers a very high quality of life. Industrial firms here are also located in close proximity to the Long Beach and Los Angeles ports. Orange County has a growing and evolving consumer base, which companies enjoy having in their backyard and many would miss if they moved to a different market. Taking all of this into account, occupiers will continue to compete for space because they understand the inherent value of being located in Orange County.

GlobeSt.com: What else should our readers know about this market?

Dienstag: While e-commerce might have its roots in urban markets, this industry is growing exponentially, including its presence in Orange County. In order to keep up with consumer demand of “same-day, same-hour delivery,” e-commerce firms are opening up additional distribution sites. Increasing demand from Orange County consumers can no longer be completely fulfilled from out-of-market distribution centers. If online retailers do not meet shopper expectations for soft goods, hard goods and perishable items, they run the risk of losing customers, thus providing motivation to expand their real estate footprints. Orange County is quickly becoming a key market for e-commerce firms to expand to, which has been one of the primary drivers of growth for the local industrial market.