Orange County’s real estate market refused to be distracted, or largely impacted, by forces outside the area in 2018.
Pricing for buildings and land continued to increase over the course of the year, while landlords of all types, for the most part, saw strong performances in terms of rents and low vacancies.
Is more of the sale in store for 2019? Check next week’s edition to get our predictions for what’s shaping up to be a make-or-break real estate year.
In the meantime, here are five of the largest commercial and residential real estate stories we tracked over the course of the year:
Development Overdrive
No Amazon, no problem for office developers in and around the Irvine area.
Irvine Co., which missed out on its quixotic attempt to bring Amazon to Irvine for its second headquarters site, continued to build office space in the Spectrum area at a rapid clip, with midrise projects—roughly a million square feet recently completed or in the works—now the focus.
Leasing activity for the new buildings and the Spectrum area in general remained brisk.
Elsewhere in OC, Lincoln Property Co. is nearing completion of its first buildings at the Flight project at Tustin Legacy. It’s the area’s first big ground-up creative-office project. Market watchers are awaiting the first leases there.
Coworking Comes of Age
The number of shared-space office landlords surged over the course of 2018. According to Business Journal estimates, the total square footage for the region’s collection of spaces largely catering to entrepreneurs, small businesses and startups rose to 1.2 million square feet as of September, up 20% year-over-year.
Much more is on the way. Large national operators like Spaces and WeWork committed to several hundred thousand square feet in some of the area’s best and most prominent buildings for locations that will open in 2019.
Questions remain, however, whether the business model employed by coworking operators—which in many cases involves inking long-term deals at area buildings at above market rate rents—is a sound one. Not everyone is a fan of the open office design of many shared-space providers, either.
Lyon’s Roar
2017’s big homebuilder story involved the sale of OC’s largest builder, Irvine-based CalAtlantic Group Inc., to Lennar Corp. The Business Journal a year ago predicted another area builder would get sold over the course of 2018.
We got that prediction right but with a twist: The $460 million acquisition of Newport Beach’s RSI Communities in March was made by another OC builder, Newport Beach’s William Lyon Homes.
The deal gives William Lyon Homes Chief Executive Matt Zaist entree into Texas, a new market for the company, as well as a large source of home lots in the Inland Empire. The deal boosted its overall lot count by 11,000 to about 28,500.
Warning Signs
Rising interest rates, fewer foreign buyers, slower sales paces and overall economic anxiety added some intrigue to the area’s homebuilding industry in the latter part of the year. The stocks of most area builders and landowners took a dip the past few months as a result.
Business is still good—it’s no 2009, for sure—but builders are bracing for a tougher selling environment in California for 2019. That’s especially true on the upper end of the market.
Irvine Co. took the most aggressive action to counteract the housing headwinds in 2018. Rather than relent on pricing for land sales to apprehensive homebuilders eyeing deals on the Irvine Ranch, the master developer opted to eschew land sales and put more focus on its in-house homebuilding arm, Irvine Pacific LP.
Neither Irvine Co. nor fellow master developers FivePoint Communities and Ranch Mission Viejo LLC show any signs of slowing down the pace of development on their respective OC sites, three of the best-selling areas in the country.
Solid Numbers
Despite a number of new projects coming to market and a few prominent give-backs of space, office vacancy levels remained in the 10% range for much of the year, a level most landlords are comfortable with. There are reports of more short-term lease deals being struck, perhaps a sign of ambiguity in terms of future market conditions, brokers caution.
Industrial vacancy rates remain near all-time low levels, around 3% with only a few new projects being built. Good luck finding a large block of warehouse or distribution space in OC.
— Mark Mueller
