MARKET DRIVERS
The demand for industrial space in the Orange County market stagnated during the first part of the year. Many market experts had anticipated a strong rebound following the presidential elections, but the reality has been quite the opposite. With business owners unable to make forecasts beyond just a few months, expansion plans have been put on hold. This uncertainty has led to a decline in demand for industrial space, placing pressure on landlords and sellers to lower their asking prices. Additionally, many businesses are struggling with the early effects of a trade war, resulting in a noticeable increase in sublease space hitting the market—an indicator of further challenges ahead.
ECONOMIC REVIEW
Several new industrial developments have recently come online. However, new construction has been progressing at a measured pace, and these state-of-the-art projects are standout properties. As the market recovers, these developments are expected to lease quickly at historically high rates. In the meantime, vacancy rates are projected to rise, and rents are likely to continue their decline.
NEAR-TERM OUTLOOK
The Orange County market is well-positioned for a strong recovery, bolstered by a diverse mix of major employers across various industries. Among the prominent players are The Walt Disney Company, Fluor Corporation, Edwards Lifesciences, Boeing, Broadcom, Pacific Life, and Ingram Micro. While several companies have relocated to other states in search of lower operating costs, many are finding that the anticipated savings don’t outweigh the missed opportunities of being outside the Orange County market. As a result, we expect these companies to return, driving an uptick in demand for industrial properties.
The commercial real estate market has been in a recession for the past twenty-four months, but there is a strong drive to push it to new heights. Pent-up demand remains as business owners await the clarity needed to move forward with their growth plans. Once this happens, expect rent growth to surge, vacancy rates to drop, and new construction to accelerate. Peak pricing is just around the corner.
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