Brokerages are predicting that Orange County will see an uptick in commercial property sales in 2009, after the total value of sales here fell by nearly $6 billion in a slow 2008.
That’s the good news.
Most other indicators point to another year of rising vacancy levels and sluggish leasing across all sectors of the county’s commercial real estate market in 2009.
Real estate buying is expected to show signs of recovery in 2009, after bearing the brunt in the financial meltdown and subsequent credit freeze, Santa Ana-based Grubb & Ellis Co. reported last week.
“Transaction volume is expected to increase in 2009 as the government’s economic recovery plan begins to take effect,” said Grubb & Ellis chief economist Robert Bach, in a report.
Nationally, sales could increase about 15% this year, Bach said. Local sales are expected to see a similar increase, driven largely by the trading of distressed properties.
Last year saw nearly $4 billion in OC property sales, according to New York-based Real Capital Analytics. That’s down from more than $10 billion in a frantic 2007, the busiest year on record for commercial property sales in the county.
Last year’s modest volumes were close to the levels seen in 2004, according to Real Capital figures.
For 2009, big local properties on the block include Maguire Properties Inc.’s 2.3 million-square-foot Park Place mixed-use campus in Irvine, as well as the South Coast Home Furnishings Centre in Costa Mesa, which is in receivership.
The prices that will be fetched for those properties aren’t expected to be anywhere close to what they would have been just a year or two ago.
Grubb & Ellis predicts capitalization rates,expected operating income divided by the cost of the building,will increase by as much as 1% for all OC commercial properties sold in 2009. Average capitalization rates in OC currently run from a low of about 5% for apartment buildings to a high of about 7% for industrial buildings.
That will generally mean a 10% to 13% decrease in prices in the next year.
The office market already saw some fire sales in 2008 as buildings languished on the market.
Office sales in OC,which represented nearly 45% of the commercial property sales here last year,were down 87% from 2007 according to figures from Grubb & Ellis.
Other property types didn’t fare much better last year.
Industrial sales were the second-largest source of deals in 2008, making up 28% of the area’s total sales. Those transactions were off 48% from 2007 levels, with the small building for sale market in particular taking a breather.
Apartment sales,representing about 20% of the OC commercial market’s total sales,declined 76% year-over-year. OC still remains the third-strongest apartment market in the country, according to Grubb & Ellis.
Retail sales, which made up only about 5% of the OC’s total commercial property sales last year, saw an 81% drop in sales volume last year, Grubb & Ellis reported.
Sales volumes are just one problem impacting the area’s 85 million square feet of shopping center space, which last quarter saw a jump in vacancies as well as a drop in rents.
OC’s retail market saw a 35% increase in vacancy rates during the fourth quarter of 2008, to 6.2%, CB Richard Ellis Group Inc. reported last week.
The average asking lease rates in the retail market fell nearly 6% last quarter, to $2.63 per square foot. That’s the first time rates have fallen since the recession began in late 2007, according to CB Richard Ellis figures.
The tough time facing retailers could start taking a toll on OC’s industrial market, according to Grubb & Ellis. The failure of some major retailers could increase the supply of available warehouse space in the county, which counts a 4% vacancy rate and 8.2% availability rate. Both figures are up about 8% from the end of the third quarter.
The brokerage projects monthly industrial rents, which now stand at about 95 cents per square foot, triple-net, will drop as much as 10% during the next year.
