The area’s real estate market appears to be on its way to a comeback—just probably not next year.
Instead, 2011 looks set for subtle gains and more mixed signals for commercial and residential real estate.
The good news is the “market is finding its bottom, and general activity has picked up since Labor Day,” said Kurt Strasmann, managing director of broker services for Newport Beach’s Voit Real Estate Services.
The bad news: too much space and not enough demand for it, Strasmann said in a mid-fourth quarter market report to clients.
Office and industrial leases and sales appear to be picking up, and commercial brokers say the amount of large blocks of high-quality space is at its lowest point in a few years.
Recent indicators also give credence to the belief that big real estate investors are taking more interest in local trophy properties as well as distressed assets.
Still, industry watchers expect to see at least another year of declines in rents due to relatively small projected employment gains.
Tenants looking to sign leases in better offices can expect to pay 13% less in rent next year, according to the 2010 Casden Forecast released by the USC Lusk Center for Real Estate last week.
Rents in the area already are off a third or more from the peak levels of a few years ago.
It could take another four or five years before the office market fully rebounds, according to the Casden projections.
There’s some positive news for the area’s office market, which totals 109 million square feet and is set to start next year 21% empty or available for sublease.
OC trails only the San Francisco area in terms of major markets that have the highest potential for rent increases in the next few years, said Robert Bach, senior vice president and chief economist for Santa Ana-based Grubb & Ellis Co.
The area’s gains are predicated on eventual employment gains, Bach said.
Chapman University predicts the area’s unemployment rate to finish 2011 in the 8.2% to 8.4% range, down from 9.1% in October. The county is expected to add about 23,000 jobs next year.
That’s “decent, but not great,” said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman.
Modest job growth and another anticipated dip in construction employment is expected to put a damper on the local housing market.
“Construction is going to be a drag” Adibi said.
Chapman’s also predicting the median price of an existing single-family home sold here will go up 3.3% next year. Rather than appreciation, the projected increase is based mostly on changes in the mix of homes sold here.
Expect to see more softening in prices for more expensive homes, which could lead to more sales.
Developers are expected to build about 3,900 homes next year, a 15% increase from 2010, according to Chapman.
PERSON TO WATCH
CRAIG ATKINS
City Ventures LLC, a Santa Ana-based homebuilder that began operations in early 2009, has been one of the most aggressive buyers of Southern California land.
Next year could reveal whether the company’s gambles on an improving housing market—aided in part by a more than $100 million investment from Los Angeles-based asset management firm Ares Management LLC—pay off for Chairman Craig Atkins.
The company has its first batch of homes—lofts in Santa Ana as well as two San Diego County developments—up for sale now. At least four others are expected next year.
The company’s primary focus has been infill projects. A new unit, CV Communities, is expected to give more suburban reach in the Inland Empire, the Bay Area and Sacramento.
—Mark Mueller
COMPANY TO WATCH
IRVINE COMPANY
After a quiet three years, the county’s dominant real estate company has been on a buying binge, spending more than $400 million on an Orange apartment complex and a Costa Mesa office complex in the past two months.
Whether those high-profile deals were opportunistic or a harbinger of a busy 2011 for Irvine Company remains to be seen.
The company is said to be close to buying another high-profile office complex in Newport Center. It no doubt will be eyed as a potential suitor for any other upscale properties that come on the market in OC as well as Los Angeles and San Diego.
On the development front, Irvine Co. has a decision to make on what, if anything, to build on excess space at the Pacific Arts Plaza office campus in Costa Mesa, a purchase it’s close to closing.
The company’s also rumored to have at least one big office project on the drawing board elsewhere in the county.
—Mark Mueller
