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Thursday, Mar 28, 2024
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REAL ESTATE WATCH: South County

Looking back on the past several years, conditions today may be the best we’ve seen for buying a commercial building in the South County market. Macroeconomic conditions have created many tough challenges, but at the same time, there are opportunities for those who look closely.

The coupling of reduced property values with historically low interest rates makes the current market unique. Securing financing today is challenging, but lenders are slowly freeing up capital, especially to qualified owners. The federal government’s stimulus package has also assisted in lowering Small Business Administration fees to values we have not seen before. This is the niche where opportunities exist and that should be acted upon.

The hardest hit segment today is the office market—specifically the small building for sale market. Values, which soared to $450 to $500 per square foot in 2007 and 2008, have been crushed recently and are now trading in the $250 to $275 per square foot range. Likewise, small industrial buildings that once traded for more than $300 per square foot are now selling in the low $200s per square foot.

The perimeter submarkets such as Lake Forest, Rancho Santa Margarita and San Clemente are at the $175 per square foot range.

In addition, banks have taken back several properties recently, which should help perpetuate this trend into 2010.

The South County office vacancy rate is 15.4% versus 16.1% a year earlier, a slight improvement, but the availability rate changed from 21.9% in the second quarter of 2008 to 24.2% in the second quarter of 2009. The average asking rate for office space dipped slightly from the first quarter to $2.37 per square foot.

The industrial market remains relatively healthy with an overall 6.4% vacancy rate. The average asking lease rate for industrial properties larger than 10,000 square feet is 88 cents triple net.

The short-term climate is not without its challenges, but the upside is that South County continues to be desirable due to a diversified economy, limited development opportunities, exceptional weather and quality of life benefits not obtainable anywhere else in

the world. South County will be back and those who buy in the next six to 12 months may come out of the recession looking like geniuses.

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

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