The real estate tumult that started in mid- 2007 didn’t have too much of a bottom-line impact on Orange County’s largest commercial brokers last year.
The value of sale and lease deals at the 20 largest brokerage offices in OC rose 4% to $18.8 billion in 2007, according to this week’s Business Journal’s list.
That total only is off by about 10% from the county’s best-ever year, seen in 2005, when brokerages here did $20.7 billion in business.
Not bad for a sector that went from one crisis to another in 2007.
The brokerage industry started the year “battling the gap in expectations between landlords and tenants. And now we’re also battling the capital markets,” said Kurt Strasmann, managing director of local operations for Grubb & Ellis Co., which took the No. 3 spot on this year’s list.
The OC offices of Santa Ana-based Grubb were the company’s best-performing in 2007, thanks to a banner start to the year, Strasmann said. Factoring in the slowdown later in 2007, the company’s transaction volume was up about 1% from 2006.
For Grubb and other brokerages, it was a tale of two 2007s.
In August, a Business Journal story said that 2007 was destined to be remembered as “the year of the flip.” A number of OC office and industrial buildings and portfolios were traded and re-traded in the first half of the year, resulting in big fees for the brokerage firms that worked on the deals.
That prediction didn’t last. Turmoil in the credit markets began in full the following month, bringing with it a big slowdown in property sales that is ongoing.
Slow Second Half
On top of that, OC’s office leasing market started off slow in 2007 and only got slower throughout the year, as landlords and tenants remained far apart on larger deals. Office vacancy rates rose from about 8% to close to 15% during the year.
It’s estimated that 60% to 70% of most OC brokerages’ business was done in the first half of the 2007.
“There’s no doubt that the market is different now,” said John Owen, managing partner for the Orange office of Voit Commercial Brokerage, No. 2 on this year’s list. “There’s been a reduction in velocity and volume of transactions.”
For many brokerages, the downturn late in the year didn’t offset gains earlier in 2007.
Much of the total dollar increase in this year’s list was seen at the top. No. 1 CB Richard Ellis Group Inc. posted a $700 million increase in business this year, which is 25% above its total from last year.
CB Richard Ellis’ 2007 increase largely was due to large amounts of business from its investment properties group in Newport Beach, officials said.
Local deals the group worked on in 2007 included the $40 million sale of the Paychex Building in Santa Ana and the Wells Fargo Bank Building in Newport Beach, which sold for about $47 million.
The Business Journal’s list of commercial real estate brokers always is one of our more competitive, not to mention controversial, lists.
After getting feedback from industry officials, this year the Business Journal opted to combine the deals from multiple OC offices of the same brokerages under one ranking, to better reflect the size and scope of some of the larger firms in the area.
That move hasn’t stopped the controversy. Several brokerages questioned whether any firm on this year’s list could have done better than show single-digit growth in 2007, factoring in market conditions in the latter part of the year.
No one’s predicting a breakout year in 2008, based on first-quarter returns.
Business remains strong for smaller leases, in the 5,000 square foot to 20,000 square foot range, as well as sales for properties less than $10 million, said Martin Pupil, senior managing director for the Irvine office of Colliers International.
But for landlords looking to lease bigger chunks of space and larger institutional sales, “we’re not terribly encouraged,” Pupil said.
“We’re starting to see some pain happen there,” he said.
Some firms have adjusted for slower business expected in 2008. There are 3% fewer brokers working at the companies on this year’s list than a year ago.
Further shake-outs and office consolidations are possible going forward, Pupil said. Colliers closed its Anaheim office last year in a consolidation.
Another emerging trend is an increased emphasis on lease transactions these days, Voit’s Owen said.
In early 2007, a majority of deals Voit worked on were for sales of industrial and office properties. Now, out of every 30 deals, nearly 25 are leases, Owen said.
In terms of leasing, “the disconnect between buyers and sellers is starting to narrow,” Owen said. “That’s more so for industrial (deals). The office market is still working its way through the credit crunch.”
