Investment in Orange County Industrial Market Reached a Historic High in 2019

Investment in Orange County Industrial Market Reached a Historic High in 2019

CoStar Insight: Sales Volume Was Just Under $3 Billion, Largely Due to a Few Major Sale-Leasebacks

Assets in Southern California’s Orange County industrial market continue to draw significant investor interest. Total industrial sales volume in 2019 came in at just under $3 billion, more than any other commercial property type in the county.

While the first half of 2019 started slowly, the trend changed with the sale of the Albertsons distribution center at 9300 Toledo Way in early July. The 1 million-square-foot facility in Irvine sold for a record $277.7 million in a sale-leaseback transaction. This was the largest single-asset industrial sale recorded in the county’s history.

In October, CenterPoint Properties bought the Dixie Group warehouse at 3201 S. Susan St. in Santa Ana for $37.2 million, or about $183 per square foot. The seller, a carpet and flooring manufacturer, signed a 10-year, triple-net lease on the property at the close of the sale. This sale-leaseback transaction resulted in a 5% capitalization rate for the new owners, who noted the loss of inventory throughout Orange County as a factor in the asset’s value.

In addition to record-setting individual sales, the overall pace of trades accelerated in 2019. Roughly 645 industrial sales took place in 2019, or roughly 5% of total market inventory, and well above the 510 industrial sales that closed in 2018.

Pricing also continued to rise. Market sale prices increased by 7.1% in 2019, to around $240 per square foot at year’s end. Industrial capitalization rates are also among the nation’s lowest in Orange County, at 4.8%, but remain slightly higher than Los Angeles.

Looking ahead, while CoStar Market Analytics expects that capitalization rates will drift a little higher as demand softens and rent growth slows in the Orange County market, rates should continue to average below 5% in the near term.