Orange County Commercial Real Estate

The Orange County commercial real estate market has been struggling to ignite the small sparks of the local recovery. Office rents remain flat. Retail has begun to recover. Industrial has continued a steady recovery, posting a 4.4% vacancy rate (according to Voit Real Estate Services Q3 report). New industrial developments are abundant both in infill locations and the Inland Empire. While OC is one of the most highly desirable places to own real estate, the business environment is not yet robust enough to demand large rental increases.

On the sales side, most buildings are still trading for less than replacement cost. With the uncertainty the US government has been supplying to the world economy, it will be interesting to see what happens on the debt side, and how that will effect local market activity in the area.

Here is a quick breakdown by property type for the Industrial, Office, & Retail landscape in Orange County:

• Industrial: The Orange County industrial market continued its path to recovery, posting a vacancy rate in the mid 4% range according to Voit’s Q3 industrial statistics. Both vacancy and availability continued downward, while lease rates have been increasing consistently since early in 2011. We’re seeing significant developments happening both in infill locations and the Inland Empire. Several projects have been built on a speculative basis and leased either before or just after completion. We expect this trend to continue.

• Office: Vacancy is still hovering around 15%, which isn’t terrible. A common theme at local conferences has been panelists’ commentary on the near complete lack of rental growth for office product, tempered by the idea that an upward trend will have to occur at some point. According to the Colliers office report, rental rates experienced slight growth in Q3 (about $0.03 psf). Not very noteworthy, but a step in the right direction. On the office sales side, owner/users have been very active in acquiring properties to occupy. Many users understand its still somewhat of a buyers market, and if the property fits their operation needs, now is a good time to buy.

• Retail: Many people in Orange County love to shop and have the disposable income to do so. As such, many retailers are making an effort to expand their presence in Orange County. LA Fitness just opened its flagship club at Park Place (located at Jamboree & Michaelson). Many large national retail tenants are backfilling existing space in the county. This should have a positive effect on smaller retailers in the area. Many developers are getting busy again, but rather than going ground up they are buying existing centers in good areas and redeveloping or repositioning the assets. On the single-tenant NNN side of things, many local owners are cashing out of their apartment properties and trading into Single-tenant NNN properties via a 1031 exchange trade. The single-tenant NNN space is in such high demand its becoming challenging for these owners to identify a property that will give them a decent return. As such, many of them are now looking in tertiary markets to get away from the competition and achieve a return they are comfortable with where real estate is not so expensive.

For any questions regarding financing orange county commercial real estate, please contact us.

Joe Giordani, Manager, Barry Slatt Orange County office