There are signs of life in the commercial real estate market with a pickup in interest—if not closed deals—from office investors.
Dealmaking for the sector have been at a standstill in the past two months, but the tide seems to be shifting as consumers pick up optimism, interest rates remain low and private investors look to deploy unallocated capital, says one of the area’s top brokers for large office and industrial properties.
“There is capital that has been sitting on the sidelines, [and] buyers still want to invest,” said Jeff Cole, vice chair of capital markets at Cushman & Wakefield’s Irvine office. “There’s been a pickup in consumer confidence as many think the worst is behind us.”
The strong demand for e-commerce has kept interest in industrial properties high as well, he said.
Pent-Up Capital
With a lack of movement in the Orange County office market of late, there’s little indication for an impact on pricing. Only three area office properties have traded above $50 million this year, including a $108 million office and land deal at the FivePoint Gateway campus announced late last week.
There aren’t any distressed sellers in the market, yet, which has kept buyers that are looking for deals at bay, Cole notes.
“While there is some discount today if sellers need to get rid of their property, I haven’t otherwise seen any impact on pricing,” Cole said. “The long-term impacts will depend on how long it takes for the market to get back to normal.”
On a national basis, CRE pricing is down some 10% over the past three months, according to data from Newport Beach’s Green Street Advisors. Malls took the worst hit over that time, dropping 25%, its data shows.
Dealmaking is expected to pick back up in phases alongside the reopening of the economy, with investors keeping an eye on when companies return to the office, and when businesses open.
For now, interested buyers are primarily private investors that see Orange County as a relatively stable market.
“There is definitely some pent-up capital,” he said.
Amazon Leading Charge
Much of this capital is flowing to the industrial sector, with institutional and private buyers looking to take advantage of increasing demand for the e-commerce sector.
“The sector is not seeing any kind of meaningful rent declines,” Cole said.
Amazon “has been leading the charge,” with investors looking to buy properties that count the e-commerce giant as a tenant.
Amazon has had several new lease requirements in the past 45 days, notes Cole, primarily in the Inland Empire and other West Coast markets, though no OC lease deals are imminent.
