The steady flow of investor money into the local real estate market kept Orange County’s largest commercial brokers busy during the past year.
The value of sale and lease deals at the 26 largest brokerage offices in OC rose 13% to $20.7 billion in 2005, according to the Business Journal’s list.
That’s $2.5 billion more than the total deal value reported by brokers on our list a year ago. There was little to complain about in 2004, which recorded a 29% increase year-over-year in deal volume.
One note about the list: Brokerage results can swing wildly from year to year depending on when a few key deals were finalized.
|
|
The list also breaks out brokerages by office location. That’s because the commercial real estate market is so competitive that offices under the same brokerage banner compete for deals.
Only five of the brokerage offices reported deal volumes that declined. Fourteen of them posted growth of more than 10%. Six offices broke the billion-dollar mark in transactions for the year, the same as in 2004.
Sales continued to remain strong in the four main commercial property types: office, industrial, retail and apartments. Land sales also provided a large chunk of several brokerages’ transactions.
Brokerages boosted their ranks of brokers by 10% to 719 during the past year.
Sales drove last year’s growth for brokers. There were 2,316 sales reported by the companies on the list last year. That’s up 4% from a year earlier.
And sale prices continued to climb, increasing brokers’ take on each deal.
“Sales are moving at a historic pace,” said Brian Childs, executive vice president for the Newport Beach-based office of NAI Capital Commercial, which has its headquarters in Encino.
NAI moved up six spots to No. 12 on this year’s list, with $714 million in transactions. That was 60% higher than a year earlier.
NAI said its Newport Beach office was the best-performing office in the country last year.
“Investment sales were up all year, user sales were up and land sales were up,” Childs said.
NAI usually specializes in smaller office deals running around 15,000 square feet. But it grabbed more deals involving buildings in the 20,000- to 40,000-square-foot range last year.
The number of lease transactions in OC fell 2% to 6,463 in 2005.
Eight of the top 26 brokerages, including three of the top five, saw a decline in lease volume for the year.
The drop in leasing activity is partly a product of the scant new office and industrial space that completed construction during the past year. On the bright side for brokers, rents are pushing up among all sectors, often making lease deals more profitable for the brokerages.
“We have a very supply-constrained market, but demand continues to be strong,” said Sherry Bower, senior managing director for CB Richard Ellis Group Inc.’s OC division.
CB Richard Ellis’ Newport Beach office kept its No. 1 ranking, with a 12% rise in sale and lease deals to $2.2 billion during the past year.
The Newport Beach office of CB was the only brokerage to crack the $2 billion mark in transactions. With 65 brokers, the office has the most brokers in the county.
CB recorded a 13% decline in lease deals to 794 last year at its Newport Beach office. CB’s sales fell 22% to 166. The declines underscore the rise in the value of each lease and sale given CB’s overall gain in deal value.
Meanwhile, CB’s Anaheim office took the largest fall on the list. It went from No. 3 in 2004 to No. 11. Transactions there fell 44% to $715 million on a 21% decline in sales and a 13% drop in leases.
Besides the lack of new office and industrial space in OC, the overall decrease in leases at the 26 brokerages was a factor of a buying trend: Many smaller tenants were looking to buy their own properties last year.
Historically low interest rates drove the high volume of smaller property sales, particularly for office and industrial condominiums.
These types of property sales could be among the areas to take a big drop this year if interest rates continue to tick up, said Kurt Strasmann, managing director for the OC offices of Grubb & Ellis Co.
Grubb’s Newport Beach office moved up two spots to No. 3 on this year’s list.
High-end, class A office space is expected to continue commanding record sales prices at low capitalization rates. But there have been signs that the market may have begun to slow from its frenetic pace for sales of smaller office space, Strasmann said.
“The transition is starting to happen,” said John Owen, managing partner for the Orange office of Voit Commercial Brokerage LP. “We’ve seen a little bit of a slowdown in condo conversion activities.”
Voit, whose Orange office checked in at No. 5 with a 23% jump in deal volume to $1.3 billion, has handled many land and property sales in Anaheim related to Lennar Corp.’s planned development at the Platinum Triangle.
Sales of what was previously industrial land to residential developers are expected to continue “due to the scarcity of land” in OC, Owen said.
Voit’s Irvine office notched the No. 4 spot with an 83% spike in deal volume to $1.4 billion. Its gain came largely from sales, which grew 60% to 234 last year.
Money Flooding Market
Chalk the strong 2005 sales numbers up to eager investors, both institutional and private, wanting to place their money in local properties.
OC “has become one of the most sought-after markets in the U.S.,” said CB’s Bower. “The capital continues to come into the market at an impressive rate. Investment transactions are setting records for us, in terms of capitalization rates, and the number of deals.”
Institutional sales have increased as pension funds have continued to slightly boost the percentage of real estate holdings in their massive portfolios.
Meanwhile, smaller, private investors are going after deals with as much, if not more, gusto than their institutional counterparts.
“There’s so much capital coming into the market that it gives private investors the ability to borrow just about whatever they want,” said Richard Walter, president for Faris Lee Investments in Irvine. “It is allowing them to outbid the institutional investors.”
Brokers’ commissions are typically higher for deals done with private investors. Institutional investors usually work harder to drive those costs down.
Faris Lee maintained its No. 2 spot. The brokerage, which deals entirely in the sale of retail properties, said its deal volume rose 6% to $1.9 billion last year. The number of sales it brokered fell 20% to 100 last year.
The company has only one office, and only 12 brokers, one of the smaller staffs on the list. Typical deals are larger than most of its local competitors, ranging from $15 million to $100 million, Walter said.
Few Changes
There were no newcomers on this year’s list. That’s not to say that competition isn’t fierce locally.
In 2003, the minimum for making the list was $85 million in deal volume. This year’s No. 26 firm, Studley Inc. in Irvine, notched $210 million in deals, up 9% from the prior year.
