The OC industrial market is undergoing a transformation, and the rising vacancy rate is creating a window of opportunity for tenants and owner-users. Our latest data shows that the current vacancy rate stands at 2.72%, and by the end of Q3, it is expected to surpass 3%. This shift is significant because buildings are now taking an average of 3.7 months to lease, compared to just 2.2 months at the beginning of the year when vacancy was just 1.46%. The chart below shows there is nearly twice as much available space available than at the beginning of the year, and the most since 2015.
Why a Rising Vacancy Rate Matters
A rising vacancy rate is both beneficial and concerning depending on which side of the ball you're on. But it's essential to understand that it's part of the natural ebb and flow of the real estate market. It signifies that more industrial spaces are becoming available, which can be advantageous for tenants in multiple ways.
Abundance of Choices
With a higher vacancy rate, there's a more extensive selection of industrial spaces available. This abundance of choices empowers tenants to find a space that precisely suits their needs. Whether you're looking for a warehouse, a distribution center, or a flex space, you're more likely to find the perfect fit in the current market compared to eight months ago.
Negotiating Leverage
As vacancy rates rise, the balance of power in lease negotiations can shift in favor of tenants. Landlords may become more flexible in their terms and pricing to attract and retain tenants. This provides an excellent opportunity for tenants to negotiate favorable lease agreements that align with their budget and requirements.
Competitive Rental Rates
Increased availability of industrial spaces can put downward pressure on rental rates. This means that business owners can secure space at more competitive prices than during periods of low vacancy rates. Cost savings on rent can free up capital for other essential aspects of running a business. Over the past three months, we have seen the start of rate reductions in the Orange County market.
Improved Lease Terms
In a market with rising vacancy rates, landlords are often more open to offering favorable lease terms. This could include options for lease extensions, tenant improvement allowances, or other incentives that benefit tenants. Business owners can leverage these opportunities to secure a space that meets their long-term objectives.
Reduced Time Pressure
With buildings taking longer to lease, tenants have the luxury of time on their side. There's less urgency to rush into a decision, allowing for thorough due diligence and better-informed choices. This can lead to a more strategic selection of industrial space that aligns with business goals. It is still beneficial to give yourself plenty of time to find the right space for your company.
Room for Expansion
For businesses planning to expand or relocate, a rising vacancy rate provides a conducive environment for growth. The availability of larger or multiple spaces can accommodate expansion plans seamlessly, without the constraint of limited options. Businesses are in a better position to find an expansion space near their primary location.
Conclusion
While a rising vacancy rate in Orange County may raise concerns, it ultimately presents an array of opportunities for business owners. The abundance of choices, negotiating leverage, competitive rental rates, and improved lease terms offer a favorable environment for securing industrial spaces that meet specific functionality needs and budgets. Additionally, the luxury of time and room for expansion can lead to more strategic decisions. The dynamic Orange County industrial real estate market is evolving, and those who navigate it wisely can unlock significant advantages.
Contact us today to position yourself to take advantage of new market conditions.
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