Orange County Sees Strongest Month of Job Additions in More Than a Year

Orange County just saw its biggest month-over-month increase to payrolls since April 2021after 22,800 jobs were added in October, according to the latest report released by the Employment Development Department of California.

That hiring binge brings Orange County’s unemployment rate to 2.8%, 200 basis points lower than 12 months ago and 100 basis points below California’s statewide unemployment rate. Orange County finally exceeded the level of jobs from February 2020, the month prior to the pandemic, for the first time. That was aided in part by hiring in professional and business services and education and health services, which together have added more than 28,000 combined jobs since February 2020.

Nine employment sectors added jobs in October, led by government hiring. That was buttressed by 3,800 positions in local government education services. Professional and business services added 5,000 jobs, 3,500 of which were in professional, scientific and technical positions. That specific field has increased payrolls by 5.2% year over year.

Overall, office-using sectors, widely considered to be within the professional and business services, financial activities and information sectors, added 6,100 jobs in October. That’s a reversal of the past few months when office-using jobs sectors reported losses.

This has come as the vacancy rate in the Orange County office market remains 2.7% above what it was at the end of 2019, and net absorption — measuring the difference between move-ins and move-outs — has fallen by more than 4.5 million square feet since the start of 2020. Tenants are still shedding under-utilized office space as the amount of available sublet space locally has reached a 15-year high of 4.3 million square feet, or about 1.5 million square feet more than one year ago.

Lenders such as Mr. Cooper and American Advisors Group have announced layoffs as interest rates rise and mortgage demand softens. But layoffs are beginning to spread across the region, affecting more sectors. Rivian Automotive, Teva Parental Medicines, Avanir Pharmaceuticals and Amazon have each announced local layoffs in the past few months that have added up to about 1,000 positions.

According to the Employment Development Department, most of the top employment sectors reported fewer job openings in October compared with September. Bucking that trend was the health care and social assistance subsector. Providence Health & Services, Children’s Hospital Orange County and Hoag Memorial Hospital Presbyterian were among the Orange County healthcare providers that saw an increase in job ads in October.

Industrial Rents Continue to Climb at Robust Pace

Heightened demand for industrial space continued to put upward pressure on rents, and the trend is expected to continue, the latest CommercialEdge industrial report shows. What’s more, shrinking space availabilities and geographic constraints on new supply have further pushed growth forward.

National in-place rents for industrial space averaged $6.88 per square foot in September, up 580 basis points year- over-year. Average in-place rents increased most in markets adjacent to ports, where developable land is scarce. Southern California markets—with the ports of Los Angeles and Long Beach nearby—had some of the highest increases of in-place rents over the past 12 months, with the Inland Empire (9.6 percent), Los Angeles (9.1 percent) and Orange County (7.1 percent) leading the way in this aspect.

On the East Coast, the New Jersey market—near the Port of New York and New Jersey—has seen rents grow 7.6 percent, according to CommercialEdge. On the other side of the spectrum, growth of in-place rents was slowest in Memphis and Houston (2.0 percent), Tampa (2.2 percent) and Chicago (2.4 percent). Nationwide, industrial market vacancy clocked in at 4.1 percent in September, unchanged from the previous month. The tightest vacancies were recorded in the Inland Empire (1.1percent), Nashville (1.6 percent), as well as Central Valley and Columbus, both with a 1.9 percent vacancy.

No relief despite growing supply pipeline

The under-construction pipeline included 703 million square feet of industrial space at the end of September, accounting for 4.0 percent of total stock, CommercialEdge data shows. Planned projects included another 650.3 million square feet, representing 7.7 percent of total inventory. Development activity was concentrated Phoenix (44.8 million square feet, 15.1 percent of stock), Indianapolis (24.9 million square feet, 7.6 percent of stock) and Dallas-Fort Worth (61.9 million square feet, 7.3 percent of stock).

New supply in Southern California markets is unable to keep pace with demand: some 2 million square feet was underway in Los Angeles as of September (0.3 percent of stock), while Orange County had 3.3 million under construction (1.8 percent of stock). Despite its large active pipeline (34.9 million square feet and 5.1 percent of stock), the Inland Empire still can’t keep up with demand, with most of the construction underway being already leased.

Two Companies Are Dominating the Battle for Warehouse Space

Between them, Blackstone and Prologis have made more than $38 billion in warehouse acquisitions in 2019.

Blackstone Group Inc. and real estate investment trust Prologis Inc. are locked in an Amazon-fueled acquisition battle, gobbling up U.S. warehouse space in a bid to profit from rising consumer demand for fast shipping. Together, the two companies have inked warehouse acquisitions worth more than $38 billion in 2019. More than 40% of that total comes from a pair of deals announced in the last month.

“There’s a huge amount of demand coming from e-commerce,” said Lindsay Dutch, a Bloomberg Intelligence analyst. “The growth of online shopping and the desire for quick delivery times has really driven a need for more warehouses, especially in the last mile.” When the most recent transactions close, Blackstone and Prologis will own nearly 1.1 billion square feet of warehouse space in the U.S., more than the next 14 largest owners combined, according to data compiled by CBRE Group Inc.

Storage War

Their combined footprint could decrease as the companies dispose of newly acquired assets. Blackstone sold about $3 billion worth of logistics real estate to Nuveen Real Estate in October, and Prologis has said it will sell some assets. On Sunday, Prologis agreed to buy Liberty Property Trust for $9.7 billion, adding 107 million square feet of space in markets including Chicago and Houston. It was the third time in the last 18 months that Prologis has swallowed up a competitor, following deals for DCT Industrial Trust Inc. and Industrial Property Trust Inc.

Blackstone, too, has been adding to its warehouse portfolio. In June, the private equity giant agreed to pay $18.7 billion for U.S. logistics owned by Singapore’s GLP Pte., and followed that with a $5.9 billion deal for more logistics space in September. Globally, Blackstone has spent roughly $70 billion on logistics space in recent years. There’s a simple reason the two warehouse giants are winning an outsized share of available deals, said Eric Frankel, an analyst at Green Street Advisors: They have capital available. In the case of Prologis, its scale allows it to pay a premium for property, Frankel said.

While online shopping has grown rapidly in recent years, there’s reason to think the e-commerce boom has plenty of room to run. About 20% of sales in consumer electronics and apparel now come online, but only 4% of food and beverage sales happen there, according to eMarketer. Amazon and Walmart are investing billions to automate warehouses and accelerate delivery times, in part to help deliver on pledges they’ve both made this year to get millions of orders to customers’ homes in just one day. Taking Space Amazon’s shift to next-day delivery “will raise consumers’ expectations,” Morgan Stanley analyst Simeon Gutman said in a note Tuesday. “To avoid losing relevance, retailers might also need to move to one-day delivery.”

That could spur more warehouse deals, which accounted for 35% of large real estate transactions over the 12 months ending in September, according to Real Capital Analytics data on sales of portfolios and whole companies. That’s up from 20% in September 2015, as investors shift focus from retail and office deals to industrial real estate. For its part, Prologis is stepping up where competitors are backing off. In August, the chief executive officer for industrial REIT Duke Realty Corp. said that the company preferred investing in its development pipeline rather than paying up for a warehouse portfolio at current prices.

Still, the recent run of large warehouse deals can’t go on indefinitely, if only because there aren’t many large portfolios left to buy.“The availability of high-quality portfolios is dwindling,” Prologis CEO Hamid Moghadam said in July. When those assets do hit the market, the company plans to compete for them, Moghadam said, because “we can really squeeze a lot more juice out of those oranges.”