A brisk pace of building, apartment and land sales helped overcome some sluggish leasing activity in Orange County last year. The bottom line: another year of gains for the area’s largest commercial brokerages.
The combined value of sales and leases at the 17 largest brokerage offices here rose from $23.4 billion to $24.6 billion over the year ended Feb. 28, based on the Business Journal’s latest ranking.
That’s a nearly 5% year-over-year gain and the seventh annual increase in a row.
The latest annual ranking includes commercial property and land deals in OC, plus deals done elsewhere but brokered by those companies’ OC offices.
The seven-year streak of gains follows four previous years of declines as the local industry felt the brunt of the last commercial real estate downturn.
Deal activity bottomed out in 2009, when about $11.1 billion in transactions here were reported. Business for the area’s largest brokerages has more than doubled since.
Gains weren’t seen across the board last year, however, as nine listed brokerages reported less business.
Smaller firms appeared to take the brunt of the hit, as six of the seven smallest brokerages on the list had year-over-year declines.
Those smaller firms tended to see a corresponding decline in the size of their operations; five of the eight smallest employ fewer brokers than they did last year.
Overall, the companies on the list reported 681 brokers, up about 1% from a year earlier.
OC Attracts Investors
An influx of local and out-of-town investors—including plenty of foreign capital—helped drive activity in the market last year; sales transactions were up nearly 8%.
Orange County office, retail and hotel properties now trade at some of the lowest capitalization rates of any major market in the U.S., data from CBRE Group Inc. shows.
Firms that deal only in leasing had a harder go of it last year. The total number of leases reported by firms on the list declined by about 3% from 2015 levels.
Rising rents—and owner expectations of still more increases to come—appear to be keeping some tenants from pulling the trigger on new deals on the offices side, while an industrial sector with a minimal amount of vacancy is making it tough to do deals, according to Brian Childs, executive managing director of the Irvine office of NAI Capital.
“Office tenants are battling the increased lease rates by utilizing open space plans and higher employee counts,” said Childs, whose firm saw a 5% increase in brokerage work last year to $836 million, good for No. 9 on the list.
Higher sale and lease pricing is already baked into the market, Childs said, “So our expectation is for stabilized sale and lease pricing with limited growth in 2017.”
NGKF Additions
Firms that added brokers to their capital markets teams—which handle the bulk of OC’s priciest building sales—as well as those that have teams in place, saw some of the biggest gains on the list.
Newmark Grubb Knight Frank jumped three spots to No. 4 with about $2.6 billion in transactions—more than twice its prior year’s totals.
The firm’s Newport Beach office said its deal-flow nearly tripled compared with a year earlier, in terms of sales.
Much of that increase was the result of the hiring of a capital markets team from CBRE—led by Paul Jones in Newport Beach and Kevin Shannon in the firm’s El Segundo office—that handles big-dollar office sales, said Greg May, executive managing director of Newmark’s Orange County operations.
Newmark is now looking to bolster its investment-sales platform in the industrial sector, May said, and it recently brought in a leasing team from JLL that has the listing for about 6 million square feet of office space in the area.
The capital markets team in Cushman & Wakefield Inc.’s Irvine office had a hand in several of last year’s largest property sales, including the estimated $255 million sale of Irvine’s Google Center office campus, OC’s largest office sale last year.
Those deals helped push Cushman to the No. 2 spot on the list, up one place, with $3.3 billion in transaction volume. That was a nearly 36% year-over-year increase.
Despite a 14% dip in reported work in OC, the local offices of CBRE still comfortably kept the No. 1 spot on the list. The Los Angeles-based firm’s Newport Beach and Orange offices reported a combined $3.8 billion worth of work last year.
Rounding off the top five was No. 3, Colliers International, with about $2.7 billion of local business, and No. 5, JLL, with about $2.1 billion in work from its local office.
Colliers’ Irvine office has recently taken on a higher profile for the Toronto-based commercial brokerage following Martin Pupil’s promotion around the start of the year to president of the firm’s U.S. brokerage efforts.
Pupil has been based in its Orange County office for nearly a decade.
Other OC branches of national brokerages that are now getting an outsize share of attention include the Newport Beach office of Savills Studley, No. 11 on the list with $700 million in deals.
The firm in February completed the acquisition of Cresa Orange County, the Newport Beach affiliate of Cresa LLC in Boston.
The two Orange County offices are merging their operations and now operate as Savills Studley. The combined firm has about 35 brokers in its OC office, which is believed to make it the largest tenant advisory group in the Western U.S. by headcount.
