COSTA MESA, CA (March 3, 2014) ― Southern California commercial real estate shows positive signs across all sectors as it continues its road to recovery in 2014, shared industry experts at the 2014 Southern California Market Forecast Luncheon. The recent event, hosted by the Institute of Real Estate Management (IREM) Orange County Chapter at The Westin South Coast, brought together a panel of brokerage industry leaders representing the office, retail, multifamily and industrial markets.
“Based on all of our panelists, 2014 is expected to be another strong year for the commercial real estate industry, especially in the industrial, multifamily and office sectors,” shared Kurt Strasmann, CBRE Senior Managing Director and panel moderator. “The bottom line is that Orange County is still one of the most highly sought-after real estate markets in the country, and all of the basic fundamentals continue to move in the right direction.”
With nearly 200 industry professionals in attendance, panelists candidly shared insight on local market dynamics, industry trends and economic factors that continue to impact Southern California commercial real estate.
“In Orange County we have had broad-based recovery,” said Bob Davis, NAI Capital Senior Vice President. “We have seen positive factors such as employment growth and increased leasing activity, but one area that is still problematic is time on the market which is averaging 14 months for office space.”
In terms of the retail market, Coreland Companies Director of Retail Brokerage Matt Hammond shared that “2013 was a tremendous year for Orange County retail leasing. For the first time in years, tenants were aggressively expanding and leasing quality space. Across the county, major big box vacancies in Class ‘A’ centers went from 30 down to 1 over the past 24 months. The question for 2014 is will these retailers now turn to the Class B and C spaces?”
CBRE Senior Vice President Ray Eldridge noted that Orange County still remains a strong market for multifamily due to increasing barriers-to-entry. “Orange County will never be overbuilt, given the scarcity of remaining vacant land. Driving through Orange County can be misleading as massive land tracks, both east and west of the 405, have been gifted by the Irvine Company for conservation. Last year we surpassed previous peak rents of 2008. High demand will continue because of our diversified economy, low affordability of home ownership, high quality of life and excellent job opportunities.”
“The industrial market has more than stabilized; in fact we have seen approximately 17 percent rent growth since the market bottomed out,” shared Kevin Turner, Voit Real Estate Services Senior Vice President. However, Turner cautioned that we are not far from the stabilized peak rents of 2006. Turner sees a limit based on a formula of revenue to rents, and cautions we may once again become a victim of our own prosperity whereby tenants will be priced out of the OC market.
Strasmann asked the panelists to share some of the more interesting changes they have seen within their markets over the past year.
“We are racing towards the inflection point where it may no longer make sense to rent in OC as tenants, specifically manufactures and distributors can only afford to pay a certain percentage for rent, taxes, insurance, maintenance and utilities based on gross revenues,” said Turner. “Tenants are scrambling for alternative ways to accommodate growth, and as a result we are seeing a surge in demand for ownership positions to hedge against rising rents.”
“Creative office has been the buzz, but in the OC office market it still only represents 5% of the inventory,” said Davis. “Creative office space is generating higher rents, but it also requires a substantial initial investment. It will be very interesting to see if the payoff is there in the long run.”
“Most new multifamily developments will be the result of expensive and time consuming rezoning of functionally obsolete office, industrial or retail sites,” said Eldridge. “Some of the best locations are tied to pedestrian-oriented, transit-oriented and/or infill urban areas. Recent and on-going multifamily land value appreciation is directly tied to scarcity, rising rents and a trend toward higher densities – all of which are increasing.”
“Successful retailers have embraced omni-channel marketing to competing with e-commerce,” said Hammond. “No matter the size of the retailer, those that have seamlessly integrated their online business into everyday brick-and-mortar sales are experiencing positive growth. It’s a holistic shopping experience – if they can’t help you in the store, they go online.”
Prior to the panel discussion, Chapter leaders installed 18 members who recently earned the ARM, ACoM or CPM designations.
The Institute of Real Estate Management (IREM®) is an international community of real estate managers dedicated to ethical business practices, maximizing the value of investment real estate, and promoting superior management through education and information sharing. IREM is the home for all industry professionals connected to real estate management – and the only organization serving both the multi-family and commercial sectors.
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