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Real Estate Watch: Airport Area/Central Coast



By JON MARCHIORLATTI and TARISA CASPER

Take a good look at the John Wayne Airport area real estate market, because there’s an excellent chance that it won’t be recognizable in two years.

Changes in acquisition and lease rates, residential migration and employment, and the constant reformation of existing buildings is set to yield an entirely new look and feel for the area.

The airport area, which includes Costa Mesa, Fountain Valley, Irvine, Newport Beach, Santa Ana and Tustin, accounts for 28% of Orange County’s industrial market and 46% of the office market.

Consequently, major changes in its commercial real estate landscape could greatly alter the overall OC market.

During the past year, rental rates in the district around John Wayne Airport have risen nearly 4% in both office and industrial sectors. The trend is expected to continue in the next two years, with industrial rental rates seen rising 5% to 10% and office rates jumping 10% to 20%.

Forecasts also call for a 17% to 20% increase in class B office lease rates as early as next year. Additionally, the rising costs of construction will drive acquisition prices out of reach for many and will encourage rental rate spikes as these costs are passed on to tenants.

While these rates increase, real estate analysts predict a 1% to 2% increase in the 10-year Treasury bond yield during the next two years, which will send interest rates higher.

Moreover, steady growth of office employment in the submarket is set to attract tenants from Los Angeles County and increase demand for more class A office space in the area.

In anticipation of this demand, many developers already have slated for construction several class A projects near the airport in the next two years.

The dramatic increase in class A projects,and their expected absorption,will boost demand from previous class A tenants for more affordable class B space.

As the airport area matures, rehabilitation of existing class B buildings will transform aging properties into renovated “for lease” or “for sale” condo space.

Finally, since the airport area includes areas positioned for growth such as the Irvine Business Center and the city of Tustin, momentum to change the commercial real estate environment is overwhelming.

For example, the city of Irvine already is targeting certain areas adjacent to the airport, such as Main Street at Von Karman Avenue and Dupont Drive between Jamboree Road and MacArthur Boulevard, for mixed-use development, with much of the new space in high-rise buildings.

With the city of Tustin looking to redevelop the former Tustin Marine base into a mixed-use zone with office, industrial, retail and residential developments, land availability in the airport area will become non-existent.

These dramatic changes look to transform entirely the airport area in the next two years.

Marchiorlatti is a first vice president in the Newport Beach office of CB Richard Ellis Group Inc. Casper is marketing assistant.

The Real Estate Watch Chart – Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.



CLICK HERE


to download

REAL ESTATE WATCH CHARTS

Please note: to download the file, you will need Adobe Acrobat Reader installed on your computer. For a free copy of the software,

click here.





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