Orange County is a real estate market that many can only dream of. All properties, whether commercial or residential, are being sold at values that have broken records. This has recently been researched by commercial real estate brokerage JLL, which noted that by the third quarter of 2017, 34 office spaces were purchased in Orange County, grossing some $1.92 billion. This is an 88% growth year on year and has beaten the 2015 records.
Generally speaking, when the office space market is good, so is the overall economic climate. If employers feel like they can spend, they usually hire more and look for even more spaces. However, during tough economic times, plush spaces are abandoned, just as they did during the Great Recession.
Less than half of the outstanding debt can be refinanced. This is compounded by the collapse of the commercial rental market in the last 18 months as a result of the Great Recession.
Fortunately, in recent years, the economy has truly recovered and this is something big investors have been taking advantage of. For a long time, office building investments were incredibly risky, but over the past three years, this seems to have changed, particularly in Orange County. This is also something that JLL has observed in its research.
JLL’s Jared Dienstag notes that private capital firms are very active in the Orange County market. The growing local economy and favorable market conditions, including low vacancy and rising rents, continue to attract investors.
The commercial real estate market is favorable from various viewpoints as well. Not only are the prices right for purchases, it has been shown that, after the acquisition, the refurbishments most investors have made further boost the value of the properties. Today, on average, a square foot of office space in Orange County is worth some $286. This is 21% higher year on year and 58% higher than in 2010. It is also higher than the previous record that was set in 2008.
The Biggest Commercial Real Estate Deals of 2017
1. FivePoint Holdings purchased a development project in Irvine for $443 million from Broadcom, the tech firm. They have agreed to a leaseback for two of the buildings.
2. Muller Co. entered a partnership with Ceberus Capital Management. They joined forces to buy out Rockwood Capital, its partner, whose portfolio included a building in Santa Ana, Orange, and Irvine.
3. Emmes Group purchased two buildings in Irvine for some $200 million.
What Happened in 2017?
The biggest change in 2017 was that office space across Orange County has become almost full. The vacancy rate stood at 7.1% in 2006 and rose to 18.7% in 2010 as a result of the Great Recession. Between 2010 and 2017, 220,000 new people were hired, which represented a 16% increase. This meant office space was once again in demand. The result was that over the past three years, the vacancy rate dropped down to 11%.
Because there is less available space and demand is rising, tenants are now being charged more for their rent. Nationwide, rents were the highest in 2007, dropping to their lowest point in 2012. Today, in Orange County, they are up by 49% and they have reached a new high.
Orange County is now unique in this, however, as has been reported by the FTSE/NAREIT index.
The FTSE Nareit U.S. Real Estate Index Series tracks the performance of the U.S. REIT industry at both an industry-wide level and on a sector-by-sector basis. Annual return data begin in 1972.
According to experts, this rise is all down to an improvement in the different economic fundamentals. The reason why Orange County is so attractive, meanwhile, is that despite all these increases, it continues to be one of the most affordable places of interest for businesses in California.