Real Estate Watch: Greater Airport Area
Airport Area Office Investment Market Heats Up
After a slowdown in investment activity during 2001, the greater John Wayne Airport area office market has rebounded with four class A high-rise buildings trading in the past six months for more than $150 million in total.
Both institutional and private investors remain active searching for investment opportunities. This is due in large part to lower returns from alternative investments, a historically low interest rate environment, anticipated increases in leasing activity in the area, limited new construction activity aside from projects currently under construction, and Orange County’s ranking as one of the top-10 areas to live and work in the U.S.
Many investors believe the economic forecasts, which predict vigorous population and employment growth in the county in the next two decades,outperforming state and national levels. This economic performance will have the greatest impact on the airport area, given its profile as the “Central Business District” of OC. The county has shown that it’s rebounding from the recent nationwide recession, with a decrease in its already low unemployment rate to 3.7% in April. Forecasts call for 21,000 jobs to be added to the employment base in 2002.
Office investment activity remains brisk despite the lull in absorption and softening rental rates in 2001 and the first quarter this year. Many investors and office leasing brokers believe the market is making a move back to positive absorption in the second quarter.
Leasing activity has picked up and tenants are making deals on space before rental rates adjust upward and vacancy rates start declining. Investors see this as an opportunity to buy properties with a mixture of stability and near-term rollover risk to capitalize on the potential rent growth expected in the next three to five years.
The recent decision to annex the former El Toro Marine base for development establishes John Wayne Airport as the county’s dominant commercial airport for the foreseeable future, which will raise property values on existing greater airport area office buildings. Coupled with the favorable debt environment, the office investment market is very competitive, with multiple bids on each property.
Southern California remains one of the top three markets for office investment in the country and will continue to see sustained interest from many capital sources.
Analysis by The Smith Team: Bob Smith, senior vp/partner, Michael Kane, senior associate and Karen Scholte, associate in the Newport Beach office of CB Richard Ellis.
