Compiled by Keith Black
We felt the effects of a slowing national economy in the second quarter.
The number of deals has slowed across the board as more companies are opting to renew their leases and not expand. However, the vacancy rate for the office and industrial markets held steady from the first quarter.
The office vacancy rate in South County jumped up to 15.9% from 9.5% a year earlier and 15.4% in the first quarter. The vacancy rate in the airport area now is at 15.2%, versus 10.4% a year earlier and 15.9% in the first quarter.
Most landlords have reacted to the increased vacancy by lowering asking lease rates, offering greater tenant improvement allowances and agreeing to more initial free rent in attempts to attract tenants and retain existing tenants.
In the industrial market, the vacancy rate in South County rose slightly to 3.4% from 2.7% in the first quarter and the vacancy rate for the airport area was unchanged at 2.1%.
The small building for sale market, once the darling of the industry, has slowed dramatically. There still is competitive small business financing available, but many business owners are cautious and not willing to commit to purchases at this time.
The leasing market is slightly healthier. But deals are taking a lot longer to close and there is a distinct pricing difference in newer construction versus older second-generation buildings.
On the investment side, capitalization rates have been pushing up and will continue to do so as the capital market tightens because lenders are reacting to the credit crunch with stricter guidelines.
Capitalization rates for industrial buildings range from 6% to 6.5% and from 7% to 8% for office.
Black is a senior associate in the Newport Beach office of CB Richard Ellis.
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