Small-Box Industrial Has a Healthy Supply-Demand Balance

The industrial market in Southern California is suffering from a severe and well-documented supply shortage in the face increasing demand. In Orange County, however, the supply-demand balance in the small-box segment of the market is healthier, with a higher 3% vacancy rate and more opportunities for developers to bring new supply to the market. Still, this segment has also seen strong demand from users and increasing rents as a result.

“There continues to be high demand for industrial building between 50,000-100,000 square feet in Orange County, vacancy rates posting consistently in the 3% range and asking rental rates in the county increasing 8 percent over the past year,” Chris Migliori, EVP and principal at DAUM Commercial Real Estate Services, tells GlobeSt.com. “That said, much of the existing inventory consists of smaller buildings under 30,000 square feet, and developers who have been fortunate enough to secure land would prefer to develop and deliver single tenant buildings in the 200,000 square-foot-plus range.  The contributors for such development in that size range is lack of inventory, cost of construction and the spike in Industrial Land prices in the past 36 months.”

Migliori recently closed two industrial leases in this size range, a 53,850-square-foot building leased by U-Haul International and a 47,813-square-foot building leased by LG Hausys America. Both buildings are owned by Panattoni Development Co. “Recognizing the current Industrial Market conditions, Panattoni elected to develop four buildings ranging from 47,813 square feet to 69,882 square feet and selected DAUM as the exclusive listing agents,” says Migliori. “The land purchase was one of the last strawberry fields in North Orange County, the buildings were constructed on a 10 acre site split between Anaheim and Placentia.”

Panattoni also focused on quality in developing these properties to target top tier tenants. The properties are class-A, corporate headquarters with 30-foot warehouse clear height, ESFR, docks, fenced yards and state of the art design. “The marketing campaign attracted four nationally recognized credit tenants in the core North Orange Industrial Market,” says Migliori. As a result, the leases were signed and completed before delivery of the properties.

This year, Migliori expects industrial market activity to continue to be strong in Orange County, particularly in this market segment. “The overall Industrial Market in Orange County continues to show more horse power,” he says. “Even with 1 million square feet of industrial deliveries expected in 2020, we expect absorption will remain high and rents will continue to rise.”