The Orange County industrial real estate market showcased robust performance during the fourth quarter of the previous year, as leasing activity surged to approximately 2.7 million square feet. The JLL Orange County Industrial Market Report for Q4 2023 showed that this rise not only slightly exceeded the trailing five years’ quarterly average, but also marked a 17 percent increase quarter-over-quarter. Despite facing some challenges, the market demonstrated resilience, with total leasing volume for the year experiencing one percent growth year-over-year.
One shift observed in the report was the decline in lease renewals, which traditionally accounted for around half of the leasing volume in prior quarters. However, in the last quarter of the year, renewals contributed only 29 percent to the overall leasing activity. This shift could indicate a changing landscape in tenant preferences and leasing strategies.
The industrial development landscape in Orange County experienced significant growth in 2023, marked by the addition of 34 new buildings totaling 3.6 million square feet. This figure surpassed the combined completions of the preceding four years. Additionally, over 90 percent of the new projects delivered in the first quarter of 2023 were pre-leased. However, subsequent completions saw a decline in pre-leasing activity, with only 19 percent of properties currently under construction being pre-leased.
The increase in industrial inventory, combined with a softening in demand since the second quarter of 2023, has led to a rise in vacancy rates by 180 basis points year-over-year. The report adds that despite this increase, Orange County maintains the lowest vacancy rate in Southern California. The county’s industrial real estate market is experiencing a moderation in demand, as evidenced by the decrease in pre-leased properties.
The asking rent for the latest new completions and the 1.4 million square feet availability in the pipeline has remained above $2.00 per square foot on average. This has kept overall asking rents at historical highs throughout 2023, solidifying Orange County’s position as one of the most expensive markets in the country.
Looking ahead, the report suggests that the Orange County industrial real estate market is poised for further moderation in the coming quarters. The softening demand and prevailing macroeconomic adjustments may present challenges, but the market’s resilience demonstrated in 2023 suggests that it is well-equipped to navigate these headwinds. JLL expects Orange County to maintain its status as a high-demand and high-value market in the industrial real estate sector for the foreseeable future.
