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REAL ESTATE WATCH: South Orange County

The current market continues to be one of the best times in the past two decades to purchase commercial buildings in South County.

The market downturn has created the opportunity to purchase commercial buildings at prices up to 35% off the peak prices paid in the past few years.

The hardest hit segment in our market continues to be office space, especially small buildings for sale. Values, which had previously soared up to $450 per square foot or more, have now dropped to about $250 per square foot.

In addition, small industrial buildings that once traded for more than $300 per square foot now are down to below $200.

Since several properties still may come back from bank foreclosures and repossessions, we expect this trend to continue into 2010.

Opportunities

This price decline, coupled with the availability of favorable financing, especially through the Small Business Administration, has created excellent buying opportunities. The Federal Reserve and the government continue to keep interest rates low and to fund the SBA programs.

Buyers are attracted to South County for its desirable location, diverse economy and very limited new development opportunities. Last quarter has seen more activity with buyers and lessees starting to come back to the market to explore these excellent opportunities.

We expect this trend to continue for the next year as we come out of the recession.

Those who pull the trigger on purchases will look back and find that they were able to secure a once in a lifetime buying opportunity.

The South County office vacancy rate was 16.8% in the third quarter versus 15.4% a year earlier, and the availability rate was 24.8% compared to 21.9% a year earlier.

The average asking rate for office space dipped yet again from the second quarter to $2.25 per square foot in the third quarter.

The industrial market remains relatively healthy with an overall 5.7% vacancy rate. The average asking lease rate for industrial buildings larger than 10,000 square feet was 81 cents triple-net in the third quarter.

Bates is a first vice president in the Newport Beach office of CB Richard Ellis Group Inc.

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