Orange County's industrial vacancy rate is falling fast. According to recent research from NAI Capital, the market beat Los Angeles in rental rate growth last year. Like Los Angeles, Orange County's biggest challenge has become land, as in there isn't any for new industrial supply. The dearth of land has helped to fuel industrial rates, but with new options for development, David Knowlton, EVP at NAI Capital, says that redevelopment is going to be the best way to bring “new” product to the market.
“There is a lot of older industrial stock in Orange County, some of which is functionally obsolete and was built in 1960s and 1970s,” Knowlton tells GlobeSt.com. “Those are going to be the development opportunities going forward in Orange County. Everyone is scouring for those opportunities. They are looking to tear down that product and start over.”
Knowlton says that redevelopment is the next logical option because there is a limited selection of land sites in Orange County, and they all have challenges. “There is really nothing here to develop,” he says. “There is very little land available north of 3 acres, and the sites that are available are challenged. They are challenged through accessibility or topographically.”
Los Angeles has environmentally challenged land sites, which—until recently—were not economically feasible for new construction, because of the extreme cost to prepare the site for development. Many of those land sites have now been purchased by developers who can make the projects pencil with the increase in rental rates and property values. Orange County has a different problem. Many of the land sites have accessibility issues, which make it impossible to develop for industrial. “The available sites could be developed if the development issues can be overcome, but if a property ultimately can't get good access from the street, which in two current cases is the challenge, then they can't be developed for typical industrial use,” explains Knowlton. “It would be under utilized sue to lack of access. So, the question is: of the sites that are on the market, can they be developed; can they overcome the functional deficiencies so that the city would allow for industrial development?”
Knowlton currently has a commercial land project at Tustin Legacy totaling 56 acres, and parts of the project could potentially be utilized for industrial development—but he says that this is really the only opportunity in the market. “It is really the biggest opportunity in the market for industrial development,” says Knowlton. “We are getting very good activity on that project.”
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Kelsi Maree Borland
