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Commercial Real Estate

Survey Demonstrates Recovery Of CRE Market Has Extended For Three Years Although Retail Industry Is Retrenching

According to the Allen Matkins UCLA Anderson forecast, the office building market in Orange County in particular is now very positive.

The sentiment for San Diego and Orange County markets has also rebounded from the June 2017 survey. In each of these markets this indicates future rental rates and vacancy rates will be better than they are today.

The last study, completed in June, showed a slightly more positive outlook for industrial buildings. Unfortunately, other real estate institutions, including lenders and developers, do not seem to show the same optimism, which is a result of the latest tax cuts, which make it more interesting to own existing real estate.

It continues many favorable tax preferences for commercial real estate that were curtailed for other industries.

According to the report, these tax changes mean that a pass-through income will be treated more liberally. It also means that deductions will change, meaning they will look at the value of structures owned by corporations. This has attracted a lot of investors back to real estate. The only thing that does not seem to be overly positive in the report is that of brick and mortar retail buildings.

Though the 2017 holiday season was relatively good for in-store purchases, there is a general recognition that too much retail space is available. Indeed, restructuring is expected to continue through 2018.

In the report, different markets and market segments are given a score of 0 to 100. Any score above 50 is classed as positive.

The Report on the Office Buildings Market

The office buildings market in San Diego scored 53.57. In June 2017, it was 48.42, which means it was negative. Orange County had also seen a rise and their score is now 60.84, demonstrating just how good is the office market in Orange County.

According to the panel, these figures show that 2020 will likely be even better than what it is today, both in terms of vacancy rates and rental rates. There has been a marked shift in sentiment, while there was a slowing down in employment growth, an absence of subleasing changes, and an expectation that commercial land prices will decrease at the same time. Indeed, according to the CoStar Group, who also reported on the state of the commercial real estate market, vacancy rates have fallen to their lowest level since just before the Great Recession.

CoStar pegged the overall county vacancy at 9.9 percent on 114.1 million square feet. So far this year, three new office buildings with 114,243 square feet have been completed, compared with seven in the first half of 2016 with 387,974 square feet. That compares with 2007’s cyclical record of completion of 119 buildings with 3.6 million square feet.

Historically speaking, lenders and developers usually become more interested in office projects when there is a vacancy rate of 10% or less. That said, it generally takes at least three years to develop a new office complex. The impact of this will not be seen until 2020. Until then, it is likely that vacancy rates will continue to drop and prices will continue to rise.

That said, in 2017 alone, some 725,408 sq.ft. of new office space were created, a doubling since the year before. While this is very positive overall, it is important to understand that it is still not at the level it was before the recession. In those days, the level stood at around one million sq.ft. per year. It is believed, however, that there will be a return to that by 2020.

The Report on the Industrial Market

San Diego, Orange County, Riverside County, and San Bernardino’s Inland Empire all received a positive score. Orange County score the highest with 59.16. In June, Southern California had seen a modest drop in its positive ranking, but it had made up for that by December. Furthermore, there are plans in the pipeline linked to Asian imports, which are leading to greater growth.

The industrial space market in Orange County is substantial, measuring 304.3 million sq.ft. In San Diego, it is 191.9 million. Los Angeles County has 997.5 million and the Inland Empire has 594.9 million. This includes warehouses, industrial spaces, and flex spaces such as office/warehouse. San Diego, therefore, seems to be the least industrialized area in Southern California. This is likely to due to rental rates there being also higher, standing at $1.06/sq.ft. Compare this to Orange County ($1.01), Los Angeles (93ct), or Inland Empire (72ct), and it becomes obvious why San Diego is the least popular.

The Report on the Retail Market

One of the less positive elements of the overall standing of the commercial real estate market in Southern California is that of retail. In San Diego, for instance, this has a negative score of 39.58, although it has remained at that level for the past six months. Orange County has a worse outlook at 36.19, and the outlook in Los Angeles is the worst of all, standing at 33.27.

On paper, President Trump’s tax overhaul was meant to provide a higher rate of return on investments. However, it seems to have missed out completely on the impact it will have on retail. According to the UCLA report, the tax overhaul has made the outlook more pessimistic overall, and that is something to be concerned about. This is also not unique to the Los Angeles, San Diego, and Orange counties. Indeed, it has also been observed in Silicon Valley, East Bay, and wider San Francisco. All of these locations saw a similar impact. The only area that was not reviewed was Inland Empire.

What has been dubbed as the Great Retail Apocalypse of 2017 certainly seems to continue to be an issue.

The reality is that overall retail spending continues to grow steadily, if a little meagerly. But several trends—including the rise of e-commerce, the over-supply of malls, and the surprising effects of a restaurant renaissance—have conspired to change the face of American shopping.

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Commercial Real Estate

2017 Was The Year Of Hotel Investments In Orange County And The Rest Of Southern California

It seems that 2017 was the year in which people started to invest in hotels across Southern California. This makes sense because it is a hugely popular tourist destination and visitors are happy to pay quite significant prices. So much so, in fact, that there are now some concerns about affordability for the average middle class Californian.

As the weather warms up, families across California are planning summertime visits to the beach. But overnight trips to the state’s famous coastline are becoming increasingly difficult for middle-class residents to enjoy because the price of admission is soaring.

Investments Continue to Pour In 

However, while those concerns were raised and some people were worried about the inaccessibility of the California coast to the average person, investments still continued to come in, resulting into luxury hotels and properties. In fact, according to Atlas Hospitality, some 180 hotels were sold across this part of the state last year alone.

Atlas Hospitality reports 180 Southern California hotels were sold in 2017 — seven more deals that 2016 and including 17,051 rooms — up 8 percent in a year. And buyers paid up, spending $3.8 billion to acquire Southern California hotels last year, a 22 percent jump above 2016’s deals. The median hotel value, per room, rose 8 percent.

They have also reported that 39 new hotels opened in 2017, and that 2018 will see 75 new hotels opening. It is believed that this ‘binge’ in purchases is due to investors becoming less interested in other forms of commercial real estate, as well as an increase in investors from the Asia/Pacific region. According to Atlas Hospitality, 32 of the hotels sold in California 2017 were classed as ‘Trophy Hotels’, which means they costed at least $50 million. This was the highest for all of the states in the country.

Unsurprisingly, this was an effect seen across all of Southern California. In Orange County, there was a one to 23 rise, although the median price per room price for sold hotels did drop by 5%. The most expensive deal was seen in Newport Beach, where the Duke Hotel, a 440 room luxury hotel was sold for $125 million.

Renaissance Newport Beach (part of the Marriott Family – Marriott Rewards) is a luxury lifestyle hotel. The AAA Four Diamond Awarded Hotel is lifestyle hotel with a Newport Beach California vibe where style meets the sand. The Lobby is interactive with a Navigator who will customize your Newport Beach experience.

Meanwhile, there was an eight to 29 rise in sales in San Diego County, and a 9% increase in median selling prices. San Diego County’s most expensive deal was Carlsbad’s Park Hyatt Aviare, the 329-room hotel that sold for $187 million.

Observers also noted developments in Riverside County, where some 31 hotels were sold in 2017, nine more than the year before. However, there was a 7% decrease in value per room. The most expensive deal here was Palm Desert’s JW Marriott Desert Springs Resort, and 884 room property that was sold for $160 million.

Decline in Los Angeles County and San Bernardino County

Two exceptions to the rule seemed to be in Los Angeles County and San Bernardino County. In the first, there was an eight to 50 decrease in sales. However, the value per room reached a record high with a 12% jump. West Hollywood’s The Jeremy, a 286 room hotel, sold for $280 million, making it the priciest deal in all of Southern California.

San Bernardino County, as mentioned, was also down, one sale to 26. However, they saw the highest increase in median prices per room, with a 37% increase. Their most expensive sale was San Bernardino’s Hilton Garden Inn. The 115 room property sold for $21.5 million.

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Commercial Real Estate

Commercial Tenants In Orange County Could Be Facing A 40% Rent Increase

Many businesses in Orange County choose to lease their building after weighing up the pros and cons of leasing vs buying. When people lease a property, they will need to pay a monthly amount to their landlord. There are times, however, where the monthly rent can increase, sometimes by as much as 40 percent!

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Commercial Real Estate

How To Get Your Budget Right For A Commercial Real Estate Lease

Rent is usually a substantial cost for a business. This is why it is so important that, before you sign a commercial real estate lease, you get your budget in order. Indeed, commercial real estate experts always talk about the importance of proper planning and preparation.

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Commercial Real Estate

What Happens After A Listing Agreement Is Signed?

If you own a piece of commercial real estate in Orange County, there are three things you may want to do with it. Firstly, you may want to run your own business from the property. More commonly, you may want to lease it out, so that you can earn on your investment. Lastly, you may be in a position in which you want to sell the property.

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Commercial Real Estate

Understanding The Hidden Cost Of Taking Out A Commercial Lease

Taking out a commercial lease is a huge moment, and one that you have to think carefully about. One of the reasons for that is because there are quite a few hidden costs that you may not have been aware of. It is also for this reason that you must have a team of professionals on your side when you are negotiating your lease. So what are some of the hidden costs, and how can you avoid them?

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Commercial Real Estate

Huge Boom In Orange County Office Space

New research has shown that Orange County, CA, is currently the best place to buy office property. Specifically, the commercial real estate market in San Juan Capistrano is booming faster than anywhere else. This has made the city, and Orange County as a whole, very attractive for those interested in investing in commercial real estate.

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Commercial Real Estate

Frequently Asked Questions About Commercial Real Estate

The field of commercial real estate is very interesting and important for a variety of  reasons. Naturally, business owners are interested in this type of real estate, whether for purchase or for lease. Furthermore, this field of real estate is also very interesting for property investors, including those who are part of a commercial real estate investment trust. However, it is also one that raises a lot of questions. Let’s take a look at some of the most important questions around.

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Commercial Real Estate

Big Changes In The Real Estate Professionals Market In Orange County

There have been some very interesting appointments and promotions within commercial real estate firms in Orange County over the past few weeks. Firstly, the new Southern California-Hawaii division of the CBRE Group has appointed Lewis C. Horne as their president. This means he will now focus on Orange County, the Greater Los Angeles area, Hawaii, and San Diego. One of the offices he will head is that of Newport Beach.

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Commercial Real Estate

Is Owning Commercial Real Estate Bad For Business?

The question for businesses on whether to buy or lease commercial real estate is one that seems a long way from being answered. It is a known fact that both buying and leasing have their own pros and cons, and that they tend to be most suited to different situations and business set ups. Where an investor, for instance, will always purchase commercial real estate, a startup business will almost always lease it. But what about for those in between? What is the better option for them?

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