REAL ESTATE : Industrial Space Demand Still Strong as Tenants Turn to the South County

Local developers are constructing a lot of warehouses and distribution buildings in Orange County--1.5 million square feet in the first quarter--as demand for such structures continues strong.

Grubb & Ellis Co. said it counted 3.5 million square feet of industrial space that was sold or leased during the first three months of the year. While impressive, that was below last year’s 4.4 million square feet.

But not enough buildings are being constructed to keep up with demand, the brokerage said. The vacancy rate for industrial buildings dropped to 11% during the quarter, down from 15% last year. Out of a total of 82 million square feet of available space, 9.3 million was empty during the first quarter.

One reason for the scarcity of such buildings is the rising cost of land in the county. Developers “are finding it more lucrative to develop office projects where they can command higher rents,” said George S. Spragins, a Grubb & Ellis vice president in Newport Beach.

The survey found that southern Orange County had the highest asking rates for leases in the county, at 50 cents to 70 cents a square foot. Vacancy rates were also lowest in the south at 6%. As it gets more difficult to find good buildings in the developed northern part of the county, tenants have begun looking at neighborhoods in the south.

The northern and central parts of the county had the lowest rates, from 35 cents to 65 cents, but the north part of the county had the highest vacancy rate at 13%. The north county market is the largest, the brokerage said, with 28 million square feet.