By DAVID BOLT
The commercial real estate market in South Orange County (Irvine Spectrum to San Clemente) is steady despite a slowing housing market.
The industrial market remains tight as increasing land values have slowed construction, keeping inventory low. The South Orange County industrial vacancy rate is 2.7% for manufacturing and warehouse space and 7.2% for research and development space.
The office sector is seeing substantial construction and second generation space returning to the market due to the shakeout within the mortgage industry. The office vacancy rate in South Orange County is currently 12.9%.
Industrial
The vacancy rate in South Orange County remains low.
The strongest segment of the sector has been manufacturing and warehouse distribution space.
The average asking lease rate stands at 98 cents a square foot per month, representing an 8 cent increase from the third quarter.
Sale prices for this sector continue to rise.
The research and development market and the small-building for sale market have slowed dramatically and the time to lease or sell these properties has increased. The value of these properties does remain stable, just more patience is required than a year ago.
Office
The vacancy rate for the fourth quarter was 12.9% versus 10% in the third quarter. Expect the vacancy rate to increase in the next three to four quarters due to the completion of several office buildings.
In addition, a substantial amount of sublease space entering the market is having a negative impact on the leasing activity for direct deals.
In a nutshell, we are experiencing more available space and fewer tenants in the market due to many landlords becoming more aggressive on renewals.
The average asking lease rate for South Orange County office properties is currently $2.81 per square foot.
Investments
There are fewer 1031 exchange buyers in the market so there is less competition for available investment properties. This coupled with rising interest rates are pushing capitalization rates slightly higher.
We are seeing capitalization rates for industrial at 6% to 6.25% and office at 6.75% to 7%. Larger portfolio sales of quality product have traded as low as 5.75%.
Industrial multitenant buildings remain the most popular investment property throughout South Orange County.
Bolt is a first vice president in the Newport Beach office of CB Richard Ellis Group Inc.
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