ORANGE COUNTY, CA-“There's a large appetite for investment in Orange County, and there are way too many investors for properties available,” Jeff Ingham, senior managing director of Jones Lang LaSalle, tells GlobeSt.com. Ingham says that as the professional and business-services sector rallies, the market is so hungry for office properties in which to invest that there have been many unsolicited offers on buildings in this region.
“A lot of money wants to invest in Orange County, but there's nowhere to put it,” he says. The cause of this phenomenon is mainly that many buildings are being controlled by special services as they've been filtered through the new ownership process. These special servicers have windows of time during which they can hold the properties—typically two to three years—which keeps them from eager buyers.
Ingham says in Central Orange County, many buildings will go through the sale process in the next 12 to 24 months, and this will bring a large diversity of buyer groups into the market—a good thing for a market that has historically been controlled by a few large owners like Equity Office Properties and the Irvine Co. “In the new cycle, those sales are going to occur, and there's going to be different buyers buying those properties. We're not likely to have consolidation as in the past.”
Most opportunistic buyers are betting on appreciation in rents over the next two to five years, “so they're really underwriting rental growth in the market and are buying at aggressively low cap rates with the bank's expectation that rents will increase,” Ingham says.
As GlobeSt.com previously reported, the trend of diversifying buyers paying large sums for office properties can also be seen in the L.A. market, since US Bank Tower was recently sold by MPG Office Trust to Beringia Central LLC, a wholly owned US subsidiary of Singapore-based Overseas Union Enterprise Limited for $367 million despite it being nearly half vacant. Michael Zietsman, managing director of capital markets for JLL, told GlobeSt.com in March that the trade was “a great thing for our market” and that the trade was “a little boost for Downtown. It's a good thing to have an international investor buying into one of our core office buildings. They obviously see the opportunity to create a lot of value.”
Nico Vilgiate, Colliers International's recently appointed EVP in its Downtown L.A. office, told GlobeSt.com at that time, “What's most significant is that it's a fresh new owner to Downtown L.A. and adds some ownership diversity in terms of potentially creating a more competitive environment for tenants to lease up properties to tenants looking for space Downtown.”
According to JLL's first-quarter office report for Orange County, leasing activity was rather lethargic during the quarter. Ingham says last year several large lease transactions occurred in the Orange County market, but this year that volume of transactions of that size is not in the pipeline. “The number of tenants in the market right now that are over 100,000 square feet is less than half of what it was a year ago,” says Ingham. “That had to do with a couple of different factors: general lease expirations and corporations taking advantage of the opportunity to consolidate when there were large blocks of space in the market, and just general growth.”
Despite the slow quarter, the report says there were a few large office-lease transactions inked during the quarter: Google has leased 80,000 square feet of new build-to-suit space to be constructed next to its current Irvine location, Stradling Yocca Carlson & Rauth renewed 74,000 square feet at 660 Newport Center Dr. in Newport Beach and Kulicke & Soffa signed a new 66,500-square-foot deal at 1821 E. Dyer Rd. in Santa Ana, relocating from Irvine.
Ingham adds that the Airport submarket has nearly half of the overall office market, and many large corporations are headquartered there. “Generally speaking, you tend to see more of the large activity there as compared to the outer-lying submarkets.” Ingham had told GlobeSt.com in February that a considerable amount of venture-capital funding was focused on that particular region of Orange County.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
