The Orange County and Mid-Counties industrial markets continued to tighten in Q2.
Vacancy fell in both markets to near record levels, yet net absorption was able to stay in positive territory despite the lack of quality inventory. That is forcing those businesses who need to stay in the area to either renew in place or take space that does not support operating efficiency. Others are looking at markets further east, but those areas are experiencing supply shortages of their own.
Both sale and lease activity would be much higher if supply were not so constrained. Lease rates and sales prices continued to climb as demand continues to be way out in front of supply. Tenants and owner/user buyers remain locked in fierce competition to secure quality facilities. Institutional investors are flush with cash they need to spend and that has kept cap rates at an all-time low despite the additional risk associated with acquiring older product in need of refurbishing.
Unfortunately, construction in both markets has fallen way behind, as land for badly needed ground-up development is scarce and prohibitively expensive. That leaves only the aging existing inventory left to choose from, much of which has elements of functional obsolescence. With very few projects even in the planning stages, this problem will only worsen in the coming quarters.