Orange County Industrial Investment Forecast
Orange County, 2018 Outlook
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Tight Vacancy in Anaheim Encouraging Investors, Tenants to Expand Search Horizon

Orange County vacancy to remain among the lowest in the nation. Unlike neighboring Los Angeles and the Inland Empire, Orange County’s industrial market is far more dependent on local economic conditions than national trade. Although local employment growth has started to slow, conditions will remain tighter than the national average, providing operators sufficient leverage to lift rents at a healthy pace. The largest question mark facing the industrial sector this year is the extent that the Tax Cuts and Jobs Act will reprice the housing market. Many of the incentives to owning a home in Orange County, including mortgage deductions and a cap on state tax deductions, have evaporated, and some buyers will wait to see where valuations settle. Although a temporary slowdown in the housing market could hurt warehouse users in the short term, sufficient demand will persist to keep vacancy well below full-occupancy levels. Population-serving firms will cover slack in the leasing sector, similar to Amazon’s 240,000-square-foot deal inked in Buena Park last year.

Rising rents have users seeking their own properties. Small buyers and owner-users will dominate the investment landscape this year. Rents have soared by more than 50 percent since the trough following the recession. Tenants that signed leases a few years ago and who are facing much steeper rental rates in today’s market will be motivated to consider purchasing their own buildings. Average cap rates for these buildings, which tend to be less than 25,000 square feet, are in the low-5 percent range. In fact, first-year returns do not fluctuate much throughout the various size tranches. Warehouse buyers may need to look outside of the Anaheim, which is the metro’s largest submarket. Vacancy here is close to 1 percent, limiting opportunities for owner-users. Traditional investors will likely pay a premium for properties in the attractive submarket.