Year-end brokerage statistics show Orange County’s office market is approaching and in some cases exceeding the rental rate highs reached at the top of the last real estate cycle.
Monthly asking building rents here now average $2.68 per square foot, according to the latest data from the Irvine office of JLL. That’s up 8.5% from a year ago and 37.4% from four years ago, when rents bottomed out at $1.95 per square foot.
Rents now are just slightly off the previous peak level of $2.74 per square foot in the third quarter of 2007, JLL’s data shows.
The office market around John Wayne Airport has already reached record high levels, with asking rents now averaging $3.06 per square foot, full-service gross.
The previous airport area peak came in mid-2007, when rents averaged $3.02 per square foot.
Part of the reason for rising asking rents in the airport area, according to JLL, is the large amount of high-end space at University Research Park—currently leased to Broadcom Ltd.—that’s being marketed at above-market rents by Newport Beach-based Irvine Company in preparation for the chipmaker’s move next year to space near Great Park in Irvine.
It’s not just the high-end space that’s driving the rental increases, according to the report.
“Rising rents are causing a significant number of tenants to get priced out of Class A buildings and move to Class B space,” according to JLL Senior Research Analyst Jared Dienstag.
That caused the class B market to record five times more positive net absorption than class A during the past year. Class B rents in the airport area jumped more than 11% year-over-year and by nearly 8% in Central and North OC.
OC’s office market’s vacancy rate is now 10.9%, down from 13.5% a year ago. That’s the lowest year-end rate since 2006.
A few factors help make the case that this year won’t bring the precipitous drop-off that occurred shortly after the top of the last real estate cycle, JLL’s report notes.
Much more sublease space was available at the peak of the last market than now, thanks to a local mortgage industry that was already in the early stages of imploding. In addition, overall nonfarm employment in OC is up about 6% from then and still shows signs of growth.
Austin Power
Irvine-based real estate investor Steadfast Cos. has started the year with the acquisition of a big apartment complex about four miles north of downtown Austin, Texas.
The company’s Steadfast Apartment REIT III Inc. affiliate said it paid $44.5 million for Canyon Resort at Great Hills in a deal that works out to about $174,000 per unit.
The complex has 12 three-story buildings with one-, two- and three-bedroom garden-style apartment homes averaging 983 square feet. About half of the units recently were renovated.
Monthly rents at Canyon Resort, which was built in 1997, average about $1,335, and the community is 94.5% occupied, according to Steadfast.
The buyers took out a $31.7 million, 10-year loan with PNC Bank to finance the buy at a 3.07% interest rate, according to regulatory filings.
It’s the nontraded REIT’s third buy after kicking off acquisitions in mid-2016. Its other investments have been in Aurora, Colo., and Gurnee, Ill.
The investment fund said it intends to “acquire a diverse portfolio of middle-market apartments and senior living facilities located throughout the United States.”
It had raised nearly $53 million from investors by year-end.
Steadfast also runs a few other investment funds that buy apartments and other properties.
