Next year, however, retail activity will slow, so owners will be seeking ways to increase their bottom lines with a more creative mix of tenants. That, combined with residents' concern regarding development expressed in 2000 with the passage of slow-growth initiatives in some key cities--most notably Newport Beach--will contribute to limiting construction of new product in 2001. For what will be built, location and product type will differentiate the market, the report notes.
Infill opportunities will still exist in older, more urban areas like Garden Grove and Fullerton. Converting existing industrial product into retail will add somewhat to retail availability in the central, west and north county submarkets.
"There's no more developable tracts of land in Orange County, so the majority of the focus from now on will be on infill," Brown says. "All the big deals are done. What's left is going into the older areas and rehabbing them. Rehabbing to make them competitive with the new millennium. Only centers that are well placed and maintained are the ones that are going to benefit because of a lower supply of retail."
Brokers who want to stay profitable will seek creative solutions, Brown says, like looking at things that are normally overlooked, and traveling outside Orange County to make the most out of potential sales and lease opportunities.
On the multifamily side of the equation, rents were up 10% to 12 % in Los Angeles and Orange counties, and vacancies dropped to single digits. Scarce land for building is selling at premium prices, and production has nowhere near met absorption. Next year both counties are projected to have parallel market conditions. Vacancies will continue to tighten to 2% in both markets, the report says, and rents will continue to grow, although at a more moderate 8% to 9% rate.
"As vacancies tighten, the housing crisis will continue to worsen next year with 12 units needed for everyone produced," the report says. "More sellers than ever before will be REITS, whose 1996 and early 1997 acquisitions have sufficiently grown in value to justify liquidation."
The best investment opportunities will be in small properties built after 1960 in Orange County, considering that 80% of all buildings in both counties are more than 30 years old and 98% have less than 100 units. These properties are prime for rehabilitation, especially those with two-bedroom and larger units.
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