The effects of a soft office leasing environment, which is continuing well into this year, took some luster off of the local market, keeping brokers from reaching the record heights they set a year ago.
The volume of sales and leases at the 25 largest brokerages in the county fell 7% to $18.3 billion in 2006, according to this week’s Business Journal list.
The amount in transactions last year puts the totals on par with the $18.1 billion posted in 2004. Despite the decline, Orange County’s largest commercial brokers were busy and profitable last year, thanks to the continued influx of pension fund, private equity and other non-local investor money into local buildings. That kept sales prices for local buildings near an all-time high.
The amount of deals last year still is a strong showing for brokers, who have seen business nearly double since 2002, when $9.7 billion in sales and lease transactions were reported.
“It remains to be a very strong real estate market here, and it will continue into 2007,” said Sherry Bower, senior managing director for CB Richard Ellis Group Inc.’s OC division.
“There’s concern about the subprime issue, but it isn’t traumatic for the real estate market,” Bower said.
Professional services,the main tenants for office buildings,saw 4% employment growth in 2006, a strong sign for the market, she said.
Local watchers also are encouraged by the amount of investor money making its way to OC.
“There’s still an oversupply of institutional dollars wanting to get into the market,” said Kurt Strasmann, managing director of local operations for Grubb & Ellis Co.
Private capital is starting to show some softness, likely scared off by the high prices being seen in all types of buildings.
This is especially true for buyers of owner-user buildings in the 2,000-square-foot to 5,000-square-foot range who are taking note of the slowdown in the local housing market, Strasmann said.
The Business Journal’s list for commercial real estate brokers is, to put it bluntly, one of our more competitive, and controversial, lists.
This year the controversy starts at the top. Irvine’s Faris Lee Investments,a niche brokerage that works on sales of shopping and retail centers across the country,took the top spot on this year’s list, with a 3% increase in sales volume, to $1.9 billion.
The company, which doesn’t do leases, also reported a 22% increase in sales transactions to 122.
Faris Lee has worked on some notable local shopping center deals in the past year, including the $25 million sale of Jeronimo Center in Mission Viejo, the $29.4 million sale of Marbella Plaza in San Juan Capistrano and the $39 million sale of a section of the Shops at Aliso Viejo.
Other brokerages question whether a company of Faris Lee’s size,it only counts 12 brokers, about a quarter the size of competitors’ offices,can really pull off the number of deals it reports.
Following Faris Lee was the Newport Beach office of CB Richard Ellis, No. 1 last year, which reported $1.8 billion in deals, down 17% from a year ago. The office had been the only brokerage to break the $2 billion mark in 2005.
Another source of contention for the list: The Business Journal breaks out brokerages by office location. That’s done because the commercial real estate market is so competitive, offices under the same brokerage banner often compete for deals.
Some officials counter by noting that many of their brokerage teams work out of multiple offices, so to break up the results by office just dilutes their results, and rankings.
That’s not just at the top of the list. A few smaller brokerages with multiple OC locations didn’t make the cut independently, but would have been included on the list if combined.
Had we combined offices, the list would have CB Richard Ellis at No. 1, followed by Grubb & Ellis and Voit Commercial Brokerage LP.
As far as shake-ups on this year’s list, the largest event that took place was CB Richard Ellis’ $2.2 billion acquisition of Trammell Crow Co.
Locally, Trammell Crow was No. 13 on last year’s list, with 16 brokers and $674 million in sales and lease transactions.
A large number of those employees went elsewhere following the deal. The two local offices of Voit Commercial grabbed about five ex-Trammell Crow brokers.
Also, Eric Hinkelman, previously a principal for Trammell Crow, now is the senior managing director for No. 9 Cushman & Wakefield Inc. Two others who also joined Cushman were Jeffrey Cole and Rick Putnam. They had been with the Southern California capital markets operations of Trammell Crow, which had been based in Irvine.
No. 3 Grubb & Ellis saw an 8% drop in transactions to $1.6 billion last year.
Rounding out the top five were two Voit Commercial Brokerage offices.
The Orange office of Voit Commercial came in at No. 4 with $1.2 billion in deals, up 4% from a year earlier. The brokerage’s Irvine office took the No. 5 spot. It saw a 25% drop in transactions to $1 billion.
The ranks of brokers in the top offices here grew by about 3% during the past year. There are now 710 brokers locally.
The companies on this year’s list posted a total of 5,495 lease transactions during the year, a 9% drop from a year earlier. Sales were down 5% to 1,951.
The general consensus is that for office leases, tenants are deciding to wait until many of the new development projects are complete before signing any deals, hoping that the increased supply,aided by any space given back by the mortgage industry,will soften rental rates.
“It is going to be a slow leasing year in 2007. But interest is picking up, there are more bodies going through the buildings,” Strasmann said.
Class A office asking rates increased nearly 25 cents during the first quarter, and now stand at about $3.03 per square foot. For all office building types, asking rents are up 20 cents to $2.66 per square foot, according to CB Richard Ellis.
Tenant brokers say that while asking rents may have cracked the $3 per square foot threshold for top-end space, leases being signed are 10 to 15 cents lower.
