COMMERCIAL
If you ask locals what’s the most misleading statistic in the commercial real estate market these days, they’re bound to mention asking lease rates for offices.
Most brokerage reports show that Orange County office landlords have increased their asking lease rates by some 5% in the past year,which would suggest a healthy office sector.
But no one would say that directly. Slowing demand and vacancy rates that have nearly doubled in the past year means that few deals are made at those asking rates.
A more realistic view of OC’s office market can be seen in a recent report by the Irvine office of tenant brokerage Studley Inc.
The effective rents for the county’s tenants,the actual cost of occupancy for a tenant, which takes into account total rent costs minus concessions, which are amortized over a 10-year period,dropped 6.9% last year, according to the study.
The tenant effective monthly rent now runs about $2.70 per square foot, according to Studley’s figures.
Total rent,the gross rental rate, plus operating expenses, real estate taxes and electricity,now stands at about $3.08 per month, which is down 5.4% from a year ago.
Meanwhile, landlord concessions are up more than 7% from 2006 levels, following two years of decreases, Studley reports.
For 10-year leases in excess of 50,000 square feet, tenants can expect about three months of free rent, plus tenant improvements of about $30 per square foot and a moving allowance of $1 per square foot.
In lease deals less than 50,000 square feet, five-year leases are more prevalent and companies are likely to see tenant improvement allowances of $20 per square foot, along with three months of free rent, the report said.
OC’s sluggish office market stands in stark contrast to West Los Angeles, where the tenant effective rent is up 14.6% from a year ago, to a monthly rate of $3.52 per square foot and in downtown Los Angeles, where the tenant effective rent is up 4.8% from a year ago, to a monthly rate of $2.38 per square foot.
As for those asking lease rates,they look set to start dropping in 2008 to better reflect the current market.
At least one of the county’s larger landlords has begun advertising rate cuts of about 10% for its OC properties, according to brokers.
Slow Industrial Quarter
Industrial construction came to a halt last quarter, according to the local offices of CB Richard Ellis Group Inc.
No new industrial construction began in the first quarter,a rarity for OC, which has seen dozens of smaller, for-sale projects built during the past few years. The lack of development is due more to increasing land values than the iffy local economy, according to CB Richard Ellis officials.
Not too many projects were completed last quarter, either. Only two properties in Anaheim and Santa Ana completed construction in the first quarter, totaling 86,700 square feet.
In North Orange County, there are 18 buildings totaling more than 293,000 square feet still being built.
South Orange County has 61,000 square feet under construction.
Self Storage Fund
Ladera Ranch-based Strategic Storage Trust Inc. is looking to raise $1 billion to buy self storage buildings.
The newly formed company registered with the Securities and Exchange Commission to sell up to $100 million of shares in an ongoing offering at $10 each. Strategic Storage, sponsored by Napa-based U.S. Commercial LLC, will be a non-traded real estate investment trust.
H. Michael Schwartz, the company’s chairman and president, has served as president of U.S. Commercial since 2004. Prior to that, he was the managing director of private structured offerings for Santa Ana’s Triple Net Properties LLC.
RESIDENTIAL
Foster City-based Legacy Partners has named Tim O’Brien as a senior managing director and partner for the developer’s residential division.
O’Brien will be working out of the company’s Irvine office, and will be responsible for the apartment and condominium division’s operations, acquisitions and development activities in Southern California.
Prior to joining Legacy Partners, O’Brien headed up local operations for Chicago-based Fifield Cos.
The company has plans for a pair of condo towers, totaling 250 homes, in the South Coast metro area.
Like most OC condo developments proposed in the past few years that have yet to break ground, the high-end project has been put on hold due to the slow market.
Last October, Fifield said it was considering selling the project to another developer. No deal has been announced to date.
