Smith: Many of the properties that have been marketed for sale recently have been the result of a successful repositioning effort on behalf of the owner/investor. As these properties have stabilized, the owners have been taking advantage of a robust capital-markets environment to sell. Also, now that we are roughly 10 years since the last market downturn, investors that bought at the peak of the last cycle are exiting. This is primarily due to fund constraints on timing to hold properties (closed-end funds) as well as market values being back near peak values. Furthermore, with office fundamentals remaining healthy and with supply and demand in check, the market is positioned well for further growth.

GlobeSt.com: Which groups of investors are buying office properties now?

Smith: The active investors are very diverse today, including institutional, high-net-worth and foreign capital. One of the trends we are seeing right now is that higher-yielding capital is moving into investments down the risk spectrum and into relatively lower yielding assets (i.e., value-add capital moving into core-plus opportunities). Part of this is due to the lack of higher yielding opportunities, but also can be attributed to a more conservative investment approach since we are generally considered to be in the late stage of the market cycle. Also, as the Orange County office market continues to diversify its tenant base, including a significant tech presence beginning to take hold, more investors are becoming interested in allocating capital here.

GlobeSt.com: Which groups (if any) are leaving the market?

Smith: Very few investors are leaving the marketplace. The only investors that we generally see moving capital out of the market are small, private investors that are exiting properties at low cap rates and searching for higher yields outside of California. A majority of the capital that is invested in Orange County will stay invested in Orange County, just recycling capital between deals.

GlobeSt.com: What else should our readers take away from your report?

Smith: Despite pricing and sales volumes returning to peak levels, the Orange County office market remains an attractive place to invest capital given its diverse economy, high quality of life for residents and businesses and quality of investment opportunities. In addition, Orange County rents and sales price per square foot remain below replacement costs and at a significant discount to other West Coast markets, making Orange County (on a risk-adjusted basis) an attractive investment opportunity.