Not All Industrial Assets Are Feeling the Pandemic Push

In the third quarter, industrial activity in Orange County picked up as it was clear that ecommerce users were benefitting from the dynamics of the pandemic—namely increased online shopping. However, not all industrial assets are feeling the pandemic push. There is growing demand for properties above 75,000 square feet, but smaller properties have been adversely affected. As a result, there was negative 283,000 square feet of absorption in the third quarter, according to the latest research from JLL.

“We continue to see demand in industrial space for those assets greater than 75,000 square feet.  On the flip side, leasing and sale activity of smaller properties under 50,000 square feet as been adversely effected as a result of the pandemic,” Byron Foss, EVP at JLL, tells GlobeSt.com. “Manufacturers and small business continue to struggle as uncertainty surrounds the market.  Fortunately for Orange County, new construction is limited which will help in keeping the inventory in check.”

While some segments of the market are still struggling, overall, leasing activity increased in the third quarter with 57 total lease deals completed totaling more than 2 million square feet. That is a 15% increase in third quarter leasing activity from the last five years. “During the second quarter, occupiers and investors of industrial real estate were very reluctant in executing long forward commitments as there was a lot of unknows as the pandemic unfolded,” explains Foss. “In the third quarter, as the market and economy shifted, pent up demand positively impacted activity in the market.  We saw companies move forward with their real estate decisions that supported their growth and business plans to support the new economy.”

Looking ahead, the market bifurcation will remain a trend in Orange County, and it could be impactful. Orange County has a large supply of smaller box industrial buildings. “We will still see a constrained market with limited new construction on the horizon,” says Foss. “Larger, functional buildings will see healthy rent growth for the foreseeable future as tenants are left with very few suitable options.  The market to keep a very close eye on are smaller assets, sub 50,000 square feet.  This portion of the market makes up 85% of all inventory in Orange County and we saw a 100% increase quarter over quarter in new listings coming to the market sub 50,000 square feet.”