The industrial real estate market in Orange County has attracted significant attention in recent years, primarily driven by lease rates, which have played a crucial role in the market's growth and progress. Currently, the average asking lease rate for industrial real estate in the Airport Area stands at $1.70 (NNN) per square foot. However, the introduction of more sublease space into the market has the potential to alter the dynamics moving forward. Just recently, Robinson Pharma has picked up approx. 70,000 square feet in Santa Ana for an effective rate of $1.08. This is just one example of the opportunity that subleasing space brings to the market.
Sublease space refers to areas leased by tenants but not utilized by them, or tenants expanding or shrinking into a totally different space. Instead, these tenants seek to sublease the space to other potential tenants. Various factors can lead to sublease availability, including downsizing or relocation. When sublease space becomes accessible, it affects the market by increasing the supply of available space. Consequently, this can result in a decline in lease rates as landlords compete to occupy their vacant properties.
In Orange County, there has been a notable rise in the availability of sublease space. This increase can be attributed to several factors, such as the pandemic's impact and shifts in the economy, both affecting business operations. As more companies downsize or relocate, they are making their unused space available in the market. This surplus of available space has led to an increase in supply, potentially influencing lease rates in the future and creating more opportunities for new companies to get into Orange County at a discounted rate.
Renewal rates also play a significant role in lease rate dynamics. When a tenant's lease is up for renewal, they have the choice to either extend their lease or seek a new location. If a tenant decides to move, it can result in higher vacancy rates. Conversely, if a tenant chooses to renew their lease, it can decrease vacancy rates. This is because the landlord avoids the effort and expenses associated with finding a new tenant to occupy the space. As it stands, those who are renewing spaces that were signed onto five years prior are seeing an average rate increase of more than 120%, forcing them to either bite the bullet or vacate the space.
In conclusion, the industrial real estate market in Orange County is expected to stabilize after the pandemic-related disruptions that fueled the surge in demand for industrial space. The introduction of additional sublease space may lead to a shift in market dynamics, potentially resulting in decreased lease rates. However, renewal rates also influence vacancy rates and a company's ability to retain its space. As the market evolves, it will be fascinating to observe how these factors unfold and impact the industrial real estate sector in Orange County. We predict lease rates to continue to head in the same direction as previously mentioned, just at a much slower pace.
With Orange County being one of the most sought-after markets for both investors and owner-users, we can expect this demand to continue to float the market for the foreseeable future.
If you are looking for industrial space in Orange County or need assistance with your leasing strategy, please contact us at Mitchell-Osterkamp Industrial Group. We are a team of experienced and dedicated professionals who specialize in industrial real estate services in Orange County. We can help you find the best space for your business, negotiate favorable lease terms, and provide market insights and guidance throughout the process.
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