Wagner: Orange County has essentially been an in-fill market for a number of years, with recent new construction primarily coming from redevelopment of functionally obsolete industrial properties versus ground-up development of raw land. There are a few areas where we could potentially see new industrial product constructed, but typically cities prefer to see other “higher and better” product types like retail, office, medical office, etc., get constructed rather than industrial. An example of this is the former Tustin Marine Base which is in the middle of the Irvine Business Complex, but none of the non-residential entitlements are for industrial—rather, retail and office projects are constructed and planned.

GlobeSt.com: Is the market looking more to development, redevelopment, adaptive reuse or some other solution to satisfy demand?

Wagner: All of the above. However, by and large Orange County industrial buildings are not old enough to be functionally obsolete, so the number of redevelopment projects will be limited. Especially when you consider that the majority of businesses in the market do not need state-of-the-art 30-foot-plus warehouse clear, modern logistic facilities. We will continue to see some reuse/rehabilitation and redevelopment of older sites that served very specific purposes (e.g., the recent Anaheim Concourse project was a redevelopment of surplus Boeing properties), but it won't necessarily be to construct new industrial buildings. More than 2,000,000 square feet of industrial buildings in the Irvine Business Complex alone have been demolished over the last 10 years to make way for multifamily residential. These industrial buildings were still functional, but the value of the properties to redevelop far outweighed their value as industrial, so it made sense for these owners to sell and redeploy the capital elsewhere. We have also seen older manufacturing properties get converted to “creative” office if there is enough parking to support the use.

GlobeSt.com: How likely are industrial tenants to go to another market that will be able to meet their needs versus waiting it out in current space until they space they need becomes available?

Wagner: In the past, a tenant may consider relocation options within, say, a 10-mile radius, but now we may see a 30-mile radius to provide enough alternatives. It is not just Orange County that is experiencing record-low vacancy rates—L.A. is +/- 1% and the Inland Empire is +/- 3.5% versus OC at 1.5%—so it is not like there are abundant opportunities in adjacent markets. However, there are a number of reasons businesses locate where they do. For logistics companies, it is all about proximity to the Port and where their products are being shipped. For manufacturing companies, proximity to talented labor is their driving force. For entrepreneurial businesses, oftentimes their location is dependent on where the owner lives. Due to the proximity to the Port and labor talent, we don't see many companies leaving Orange County with the exception of logistics companies once their footprint gets larger than 200,000 square feet, which is about the size it makes sense for them to consider moving to the Inland Empire.

GlobeSt.com: What else should our readers know about industrial supply and demand in Orange County?

Wagner: Orange County has been a supply-constrained market for quite some time. Even in 2009/2010, our vacancy peaked at 5.6%, so we never had an oversupply of industrial buildings; we just had very tepid demand. To put this in to context, the overall US industrial vacancy is currently at a 17-year low, sitting at 5.3%. With significantly more residential planned and limited industrial planned countywide, we anticipate demand will outstrip supply for the foreseeable future, keeping vacancy rates near the lowest in the nation.