Some of Orange County’s largest and most prominent companies took advantage of a favorable office leasing environment to ink blockbuster deals last year, while out-of-town investors comprised the bulk of the region’s big-dollar commercial real estate buys.
The combined total of the 10 largest sales in the office, industrial, apartment and retail sectors was about $1.5 billion in 2011. That was down about 25% from the cumulative totals of last year’s top commercial real estate transactions.
Despite that decline, it still was the second-highest cumulative total seen for the area’s top commercial real estate sales in the past five years, as institutional investors snapped up a number of prominent area properties.
Meantime, leasing volumes showed improvement, at least for large tenants in OC. The 10 biggest office and industrial leases in 2011 boasted a combined square footage of about 4.9 million square feet, or 33% more than a year earlier.
This Business Journal special report features the 10 top sales and leases of 2011 in the office and industrial markets, as well as the largest apartment and retail sales. Data was provided by CoStar Group Inc., supplemented with other transactions reported by the Business Journal during the year.
Sales are ranked by dollar amount and lease deals by square feet. The Business Journal defines a deal as one building, a multi-building campus or an office or industrial park; large institutional sales of portfolios of separate buildings or properties with a large mix of uses aren’t included.
A handful of transactions closed in late 2010, but not included in last year’s special report, are included in this year’s data.
Office Leasing Leads
Office leasing, in particular, showed a sizeable jump in the past year, with a little more than 2.5 million square feet of deals, compared to about 900,000 square feet a year ago.
That’s the largest amount of office leasing seen on the Business Journal’s listing of top deals for more than five years. It also marks the first time during that period that square footage from the biggest office leases exceeded square footage for the largest industrial leases, whose top 10 deals involved about 2.4 million square feet of leased space.
All but one of the 10 biggest office leases in 2011 exceeded the 100,000-square-foot mark, which roughly equates to four stories in a typical office tower here. Four tenants inked deals totaling more than 200,000 square feet.
Only three companies signed deals larger than 100,000 square feet in 2010, with the largest lease on the prior year’s list topping out at 128,000 square feet.
That would only be good enough for the No. 8 spot in this week’s list.
The largest office lease of 2011 topped out at about 637,000 square feet, with Bank of America Corp. renewing a lease in Brea for a Valencia Avenue office just off Imperial Highway, where it has a call center. That deal, one of the larger office leases seen in the entire country last year, runs through mid-2019.
“Good Pops”
“Orange County had some good pops, some really big deals in 2011,” said Royce Sharf, executive vice president for the Irvine office of tenant brokerage Studley Inc.
“It was a good year (for large leases), but I’m not sure that momentum is going to stay in place,” Sharf said.
There’s still opportunity for companies to land good deals, with office rents still off 25% or more from pre-recession levels and near-20% availability rates for the region’s higher-end buildings, according to brokers that represent tenants in deals.
But with lingering economic issues remaining here and abroad—not to mention election-year uncertainty—larger tenants could be hesitant to ink big leases in 2012.
“There’s so much uncertainty,” Sharf said.
Sharf worked on two of the larger office transactions of the past year—a renewal and expansion of the headquarters for Lake Forest-based Panasonic Avionics Corp., which totaled about 440,000 square feet, and a 104,000-square-foot expansion for Western Digital Corp. at its Irvine headquarters.
Relocations played a large part in the list of top deals. Large OC tenants inking leases to move their operations last year include Santa Ana-based CoreLogic Inc., which is slated to move into 169,000 square feet of office space in the Irvine Spectrum later this year, and chipmaker Microsemi Corp., which has already moved its headquarters from Irvine to Aliso Viejo, where it is leasing about 110,000 square feet.
Office construction also led to a handful of large office leases that were completed last year.
Hyundai Motor America Inc. inked a 148,000-square-foot lease for temporary offices in Costa Mesa last year, where it’s setting up shop while new headquarters are being built for it in Fountain Valley.
In Newport Center, Pacific Investment Management Co. signed on for a 380,000-square-foot, 20-story office being built by Newport Beach-based Irvine Company. That building should be ready for occupancy in early 2014.
Outside OC Buyers
In contrast to the year’s top leasing transactions—so dominated by prominent OC names—the list of largest commercial real estate sales was more of an outsider affair.
Among sales transactions valued at $45 million or more last year—11 in total—an OC-based buyer was involved in just one, for a San Clemente apartment complex bought by Western National Group in Irvine (see story, page 24).
The rest of the highest-priced deals involved a combination of institutional buyers, distressed-asset investors, foreign buyers and other parties with headquarters outside OC. In 2010 almost half of the largest commercial real estate sales involved local buyers.
Nine-figure sales were fewer and further between in 2011, accounting for much of the 25% decline in total sales seen in this year’s listings.
Only one office—Irvine’s 2050 Main Street tower, which sold for $108.5 million late last year—cracked the $100 million sales mark last year, compared to three such deals in 2010.
The only other property of any type to top $100 million last year was The Shops at Rossmoor in Seal Beach. It traded hands in December for a reported $125.9 million, making it the most expensive real estate transaction in OC last year.
Affiliates of Boston-based real estate investor AEW Capital Management bought the 2050 Main Street office property and The Shops at Rossmoor. The latter retail property features 434,000 square feet and is being redeveloped.
