Panattoni Building Lake Forest Offices
By Mathew Padilla
The Irvine office of Sacramento-based Panattoni Development Co. plans to build 15 small office buildings in Lake Forest after paying $6.3 million for 10.5 acres in the city’s A.J. West Ranch business park.
In the first of two phases, Panattoni plans to put up seven buildings ranging from 4,200 to 6,650 square feet, according to brokers with Voit Commercial Brokerage.
Panattoni, which referred questions to Voit brokers Tim Walker and Dave Travis, plans to sell the buildings.
Walker and Travis represented Panattoni in the land buy and are set to market the buildings.
The developer also plans a larger 21,750-square-feet building for multiple tenants to lease.
Panattoni’s buildings are set to be on the smaller end, generally less than 10,000 square feet.
Plans for the second phase of the project are similar: eight buildings ranging from 4,350 to 6,750 square feet, and one larger multitenant building at 35,240 square feet.
Construction is set to start in the second quarter and finish next year, Walker said.
The project comes after six quarters of heavy sales of smaller office and industrial buildings.
In the fourth quarter, buildings of 30,000 square feet and less made up 85% of market activity, according to a report by CB Richard Ellis Services Inc.
Some may be wondering if the pool of smaller buyers might be drying up after more than a year of brisk sales sales.
“The next six months will set the tone for how well these new products will do,” said Tim Joyce, a senior vice president with Grubb & Ellis Co.
Interest rates, which have fueled buying, are a key factor, brokers said.
“If we see a spike in interest rates, all bets are off,” said Jeff Chiate, senior director with Cushman & Wakefield Inc.
Small business owners typically buy buildings and then lease them back to their companies, creating a 12% return on money that is tax sheltered, Chiate said.
The return depends on interest rates and a building’s selling price. In South County, prices are going up while rents are going down.
Panattoni plans to sell the seven smaller buildings at about $230 per square foot, according to Voit.
That’s about average for South County. Grubb & Ellis put the current average sale price for office space in South County at about $218 per square foot and $190 for industrial and research and development buildings.
The $218 average is weighed down by some low-end properties, Grubb’s Joyce said, making $220 to $225 a more common price for the area.
South County rents, meanwhile, are on a downward spiral. They’re now at about $2.09 per square foot a month for office space. Vacancies remain high at 16.5% for office space.
Industrial vacancies are 7.4% for manufacturing and warehouse space and 10% for R & D; space.
Panattoni acquired the Lake Forest property from The Douglas Allred Co., a San Diego-based developer.
