Local Demand for Industrial Space Up 16% : Real estate: Despite the increase in activity in the third quarter, a recovery in the county commercial market is still a couple of years away, says a Grubb & Ellis research director.

By CAROL SMITH

Oct. 16, 1992 12 AM PT

SPECIAL TO THE TIMES

ORANGE —

A slight increase in demand for industrial space in Orange County is one of the few high spots in an otherwise depressed commercial real estate market, according to figures released Thursday.

Sales and leasing activity for industrial space, which includes manufacturing and distribution facilities, increased 16% to 2.9 million square feet of industrial space, Grubb & Ellis Commercial Real Estate Services reported, compared with 2.5 million square feet for the third quarter last year.

For the first nine months of the year, however, sales and leasing rates were down 13%, with about 6.7 million square feet of industrial space leased or sold in Orange County, compared with 7.7 million square feet a year earlier.

A recovery for commercial real estate is still a couple of years away, said Bob Bach, vice president and regional director of research for Grubb & Ellis’ Pacific Southwest region. “The job hemorrhaging (in California) is not expected to let up until 1994,” Bach said. “We’re in for more rough sailing next year, and after that things should pick up fast.”

Because manufacturing output and productivity have grown faster than employment in the manufacturing sector, however, demand for space may increase even though jobs are not being added, he said. Companies with increased output as the economy improves need more space even if they are not hiring.

For the time being, though, the market looks grim. Of total sale and leasing activity for the latest quarter, 84% involved leasing. An extremely tight financing market has kept sales activity at a minimum, said George Economos, senior vice president of Grubb & Ellis’ office division.

Some of the demand for leased space is coming from biotechnology companies, environmental services and companies moving to areas where doing business is less expensive, said Stan Mullin, senior marketing consultant with Grubb & Ellis’ south Orange County office.

While demand for industrial space was up in the third quarter, research and development properties fared less well. For the year to date, 1.8 million square feet of research and development space has been sold or leased, a 37.9% drop from 2.9 million square feet for the same period a year earlier.

Research and development buildings are losing tenants to improved industrial buildings as well as to office buildings, which have very attractive lease rates right now, Mullin said.

Although the slow market has kept new-office construction at a minimum, that has helped keep vacancy rates under control. Office vacancy rates fell to 21.2% for the third quarter, down from 22.1% a year earlier.

Absorption--the net change in occupancy--is down slightly for the year to date. Through September, a total of 891,436 square feet of office space was absorbed in Orange County, down 6.6%.

Much of that absorption is coming from companies taking advantage of attractive lease rates and upgrading or expanding their space. South County and the area around John Wayne Airport accounted for the majority of space absorbed--139,263 square feet for South County in the third quarter and 228,102 square feet for the airport area.

The absorption is being price-driven right now, Economos said, noting that owners “would rather collect some money than no money.”

Orange County’s Office Market

The third-quarter office vacancy rate this year declined almost a full point from a year earlier. The only exceptions were in North County, where the rate increased, and the airport area, where it was virtually unchanged.

3rd qtr ’91

Airport: 22.5%

South: 26.2%

Central: 21.5%

North: 17.9%

West: 20.8%

Total: 22.1%

3rd qtr ’92

Airport: 22.7%

South: 20.5%

Central: 20.0%

North: 20.5%