By ANDREW MORROW
The deep freeze brought on by the fall’s economic crash has thawed slightly, although its chilling effect on deals still is being felt.
In general, South County’s downturn was comparable to other areas’ downturns in its increasing vacancy, decreasing rents and values, a lack of new construction and low leasing and sales activity.
The office, retail and research and development markets all felt considerable pain with negative absorption. Retail was hit the hardest with about 111,000 square feet of negative absorption.
The news wasn’t all bad: the manufacturing and warehouse segment actually held strong this past quarter, continuing as the healthiest building segment with 72,544 square feet of absorption.
This was mainly due to Big Train Inc. leasing 97,000 square feet in Lake Forest and a 73,000-square-foot lease renewal by BH North America Corp. in Foothill Ranch.
Two other notable leases also were renewals: Alliance Medical Products Inc. in Irvine (53,000 square feet) and Me & My Big Ideas (40,000 square feet) in Lake Forest. This trend of lease renewals continues as landlords become more aggressive in keeping tenants and companies halt or postpone expansions.
Overall Market
As a whole, the South County vacancy level increased in the first quarter to 7.4% from 7% in the fourth quarter. The office market remains very soft with 15.3% vacancy of nearly 3.5 million square feet. Average office asking rents are currently $2.45 full service gross, decreasing 10 cents from the fourth quarter and nearly 20 cents from a year earlier.
The ongoing rise of low-priced sublease availabilities has continued to create pricing issues for this already impacted submarket. Similarly, average retail prices fell significantly from $3.19 to $3.02 in the first quarter. These levels are similar to those seen a year earlier.
Even industrial rents adjusted, coming down 10 cents from fourth quarter to 74 cents triple net on average. Research and development prices dropped more than 10 cents from the previous quarter to $1.06.
Altogether, rents declined more than 10% in a year, reflecting an overall adjustment in real estate values across all building types.
Regardless of the downward trajectory of rents and values, deals were closed,oftentimes at full asking rates, well above the averages described above. The unprecedented appreciation, overdevelopment and market fervor seen at the peak of the market was bound to readjust. But the fundamentals of South County, namely location, age of construction and corporate environment, continue to hold strong. Steady land values and area desirability limit its exposure to the overall recession.
Despite the dismal economic climate and the growing threat of commercial foreclosures, market activity,although slow,ticks along.
A perceptible pulse of life still beats in South County as natural market adjustments continue and business and real estate owners alike steady themselves to move forward on new terrain.
Morrow is an associate in the Newport Beach office of CB Richard Ellis Group Inc.
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