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ORANGE COUNTY, CA—Orange County is a proven infill market for industrial and logistics space with few development opportunities, making quality product very limited and causing rents to continue to rise here, CBRE's senior managing director Kurt Strasmann and first VP Nick Spatafore tells GlobeSt.com. According to a recent report CBRE Research, Los Angeles and Orange County prime industrial and logistics rents climbed 9.2% year over year, putting them in sixth place after Manchester/Liverpool and ahead of Atlanta.
The rising rents, however, are not deterring tenants from entering this market and signing long-term leases. For example, as GlobeSt.com previously reported, Primary Color Systems Corp. recently signed a 187,481-square-foot, 10-year, light-manufacturing industrial lease at a corporate headquarters facility in Cypress, CA. Spatafore, together with Wade Tift of Jones Lang LaSalle Inc., represented the tenant, while Rick Ellison of Cushman & Wakefield represented landlord Cypress Distribution Center Inc.
In discussing the main cause of rising industrial and logistics rents in Orange County, Strasmann says, “The main reason for the increase in rents is the steady and consistent demand from multiple industries, coupled with a very limited amount of available supply.” He adds the barriers to entry make it very difficult for buyers and tenants to find a large supply of available product. “The result is that valuation continues to appreciate driven by a shortage of spaces for users to occupy.”
While rents are rising for all types of industrial space here, logistics and light-industrial tenants obviously have disparate criteria for their space. Logistics companies tend to look for high-functioning buildings to operate at maximum efficiency, coupled with a location that is attractive for recruiting and retaining employees, says Strasmann. “Examples of this include buildings that are close to public transit with convenient access to freeways—safe environments and that are within a reasonable distance to where many employees live. The facilities themselves need to feature top industry standards, such as clear heights of 24 feet or more—the higher the better—efficient high-quality office space, a yard area for trailer and product storage, adequate parking, a suitable truck turning radius and specific improvements for the intended use, including power requirements, image, sprinkler calculations and such.”
Transportation expenses—the cost to get the product to a facility and the expense to have it delivered to the end customer re a huge issue for logistic operators, Strasmann points out. “Hence, it is a big factor in site selection and often the number-one criteria for large-volume logistics users. In short, it's not all about rent. It's about the total operating cost of each location.”
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When it comes to light-manufacturing buildings, users are looking for different features, and the users themselves are different from logistics firms. In Cypress, where Primary Color Systems signed its lease, the types of companies looking to rent this type of space are a combination of larger corporate tenants, such as those in the auto and home-goods industries, as well as companies in the apparel and technology/electronic sectors, says Spatafore. “These companies are all drawn to the central location and proximity to the various Orange County and Los Angeles markets, with particularly good access to the 405, 605 and 22 freeways. Aside from the logistical advantages, this location also provides great access to a broad and highly qualified workforce.”
Due to historically low interest rates and attractive financing, Spatafore says his firm is seeing more buyers than in previous years, but generally speaking, companies in this market tend to lease.
The Primary Color Systems deal was highly competitive and symbolic of the general trend in the market, he adds. “Industrial fundamentals are at records in Orange County, with a near insatiable demand from tenants for locations that provide a logistical advantage as well as access to high-quality labor. The sustained level of activity—Orange County's gross activity since 2010 has averaged 12 million square feet annually—is a testament to the attractiveness of the region.”
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
