By CHRIS BATES
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 the amount of available
space low.
The South Orange County industrial vacancy rate is 0.7% for manufacturing and warehouse space and 5.5% for research and development space.
The office sector is finishing construction and continues to see second generation space returning to the market due to the shakeout within the mortgage industry. The office vacancy rate in South Orange County is 15.4%.
The industrial vacancy rate in South Orange County remains low. The strongest segment of the sector has been warehouse distribution space.
We have seen a spike in asking rates and sale prices with inventory remaining extremely low.
The average monthly asking lease rate stands at 85 cents for manufacturing and
warehouse and $1.22 for research and
development.
The research and development market and the small-building for-sale market have slowed and the time to lease or sell these properties has increased.
The value of these properties remains stable. Just more patience is required than a year earlier.
The vacancy rate for the first quarter is 15.4% versus 12.9% in the fourth quarter. Expect the vacancy rate to increase in the next two 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.
Asking lease rates, however, continue to increase. The average asking lease rate for South Orange County office properties is $2.76 per square foot.
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 6.5% to 7% and office at 7% to 7.5%.
Industrial multitenant buildings continue to remain the most popular investment property throughout South Orange County.
Bates is a first vice president in the Newport Beach office of CB Richard Ellis.
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