The Orange County and Mid-Counties industrial markets started the new year much as it ended the last one: tight supply, low vacancy and rising prices.
The US economy began its 11th year in expansion mode, job growth numbers continued to impress and wages were rising above a modest rate of inflation. All systems go for another solid year for the industrial real estate industry.
Then came March and the most sudden economic shock in generations. Our Black Swan finally landed on the pond in the form of a virus, and the response to it has essentially shut down entire sectors of the world economy. The impact on retail services was immediate, but it’s too early to say just how much damage local industrial businesses will have to endure. April 1st gave us our first look, as rents that are at record-high levels, became due for the first time under Governor Newsom’s stay at home order. Initial reports indicate that most tenants were able to meet their rent obligations for the month, but May 1 will be here soon and we still have no idea when the governor will lift the restrictions.
In terms of how the current crisis will impact market direction going forward, it’s still too early to say. We just don’t have enough dots to connect at this point.
Many lease and sale transactions in the final stages during the month of March were completed, but others were put on pause, pending further information on the depth and duration of the crisis. Those transactions that did close did so at pre-crisis price levels.
So, until we see how buyers and tenants respond to new availabilities, we can’t predict how much pricing will be impacted, if at all. Of note is the fact that both regions could see a tripling of vacancy and the actual vacancy rate would still be in the 7% range. Clearly, the tightness of the market going into the crisis will serve as a cushion going forward.
We will do our best to keep you informed as we learn more. If you haven’t already, please join our mailing list below for the latest on market activity, government assistance programs and emerging market trends.