It’s clearly been a busy year for big office sales in Orange County, as readers of the numerous sale-related items in this column and on the Business Journal’s front page over the course of 2017 can no doubt attest.
According to a new study released by the Irvine office of brokerage JLL, the deals have actually been part of a record-setting period for the area’s office market in terms of both sales velocity and pricing.
Through the first nine months of the year, sales of office buildings larger than 50,000 square feet totaled $1.9 billion, according to JLL’s research. That broke the previous record of $1.7 billion set in 2015, whose sales total slightly topped the transaction volume at the 2007 peak of the last real estate cycle. The recession quickly shrank investment in larger offices to about a quarter of the volume the area is now seeing.
The $1.9 billion this year is a nearly 75% jump in volume over last year’s office totals, when many large institutional investors took a breather on dealmaking here, and the largest transactions were largely led by wealthy private investors who live in and around OC.
That changed this year. Along with rich investors, “private capital firms are very active in the Orange County market of which they are attracted to the growing local economy and favorable market conditions including low vacancy and rising rents,” JLL said in its report.
There have been a dozen office transactions so far this year topping $50 million, according to data from market tracker CoStar Group Inc. It shows there were nine such deals in all of 2016.
One blockbuster deal in Irvine helped skew this year’s data a bit. The largest transaction, completed a few months ago, was Aliso Viejo-based Five Point Holdings’ purchase of the 1-million-square-foot, four-building Five Point Gateway project from Broadcom Ltd. in a sale-leaseback deal for $443 million.
It’s the largest recorded single-property office sale in OC by price.
Five Point is moving its headquarters to the complex, along with the local operations of Lennar Corp., and the developer said last month that tenants would start moving in any day.
Five Point Gateway sold for about $426 per square foot, well above the norm for OC deals and a big reason the average price per square foot of large office deals averaged $286 through the first nine months of the year, according to JLL.
That’s also a new area high point. The prior record average per-square-foot price here was set in 2008 at $282, JLL said.
By 2009, the average price had fallen closer to $200 per square foot. Last year, offices sold for an average per-square-foot price of nearly $250.
The fourth quarter is shaping up to add to an already active year on the office dealmaking front. Four large office sales have been reported since early October, including the completion of the 4000 MacArthur complex sale in Newport Beach, and the Orange Center Tower, deals that topped $260 million combined.
No. 16 With a Bang
OC has remained a key hub for office investors in the decade since the market crash, according to a report by real estate market tracker Commercial Café.
It ranked No. 16 among U.S. markets for office investment from 2008 to 2017 with $12 billion in deals, according to the report, which said it analyzed office sales above $5 million, and properties over 50,000 square feet. In the prior decade, OC was No. 17 with $11.7 billion in deals.
The office markets in Los Angeles, San Francisco, Silicon Valley and San Diego ranked higher than OC on the latest list; L.A. was tops for the West Coast at No. 3 with $45.5 billion in transactions. Manhattan was No. 1 in the U.S. with $128.7 billion, followed by the Washington, D.C., region with $55.1 billion.
