office, said he has seen such a trend with
his clients.
“Most tenants that need to expand,
even if their business is doing well, are
choosing to do short-term leases. They
are waiting to see what’s going to happen with the financial environment and
on Wall Street,” he says. “There seems
to be a continuous barrage of bad news,
so even the industrial market, which we
thought was fundamentally strong—
and it is—has been impacted.”
“Most tenants that need
to expand, even if their
business is doing well, are
choosing to do short-term
leases.”
LOUIS TOMASELLI
Voit Commercial Brokerage
Indeed, the latest numbers from CB
Richard Ellis reinforce Tomaselli’s point.
The Airport area industrial market recorded a vacancy rate of 3.9% at the end
of the third quarter, the second highest rate in the county and 0.8% higher
than the comparable number recorded
in the third quarter of 2007. Absorption
in the Airport area was negative 1.01 million square feet, a dramatic deterioration
from the negative 77,927 square feet recorded in the third quarter of 2007. Yet
even with all of that, the average asking
lease rate at the end of the third quarter was 84 cents per square foot, up one
penny from the same period a year ago.
Tomaselli says all of the negative news
has had a measurable impact on business,
and he expects further deterioration.“In
terms of net absorption, we’re negative now,” he says. “For every lease we’re
doing, we’re getting one space back
and in some cases for every lease we do,
we’re getting one-and-a-half spaces back.”
The trend evident in the Airport Area
is also taking place across wider Orange
County. “The last two quarters have shown
a trend of large blocks of space going
to market, with 50 buildings in excess
of 100,000 square feet becoming available for lease or sale in the third quarter
alone,” says Kurt Strasmann, executive
vice president and managing director
for Grubb & Ellis in Orange County.
RETAIL
In the retail sector, there are opposing
viewpoints as to what next year holds.CB
Richard Ellis reports that the Central
Coast area—which includes the Airport
and South Coast Metro district—had a
vacancy rate of 6.5% at the end of the
third quarter, a significant jump from
the 3.7% rate recorded in the third quarter of 2007. The area saw 101,543 square
feet come back on the market, almost
triple the 36,845 square feet in negative absorption recorded for the corresponding period last year. As with the
rest of the county, however, asking lease
rates edged up significantly to $3.69 per
square foot, as compared with the $2.50
per square foot in the third quarter of
2007. That’s partly attributable to the
fact that there is no new retail space
under construction in that area, whereas
in the third quarter of last year there was
173,288 square feet of space that was
scheduled to come on line.
Recent decisions to shutter stores
by major retailers such as Circuit City
and Mervyn’s, which will put significant
chunks of space back on the market,
are harbingers of similar revelations
to come as other major chains announce they are pulling back in the
face of challenging market conditions.
While that may be true of the wider
retail scene across Orange County and
the rest of Southern California, the impact in the Airport and South Coast
Metro area will be muted, thanks largely
to the nature of the retail space in that
region, says Mark Baziak, a retail broker
with Grubb & Ellis’ Newport Beach office. “In general, retail has slowed down,
although the A properties are still leasing,” he says. “The tenants are still looking
to do deals, but just not as many deals.”
The area has not seen as much of an impact from the economic troubles, Baziak
says of the Airport/South Coast Metro region. “We don’t have as much competition.
If you look up and down MacArthur Boulevard, a majority of it is office and there’s a
smattering of retail. It’s not over-retailed.”
BRIGHT SPOTS
Yet OC real estate professionals believe
there are other bright spots as well. Gary
Stache, an executive vice president with
CB Richard Ellis’ Newport Beach office,
cautions that while the environment may
be difficult at present, there are still some
deals being agreed upon. “There are still
deals getting done, and they’re 1031 exchanges,” Stache says.
Edward B. Hanley, president of Irvine-based Hanley Investment Group, predicts
the current difficulties and revaluations
will benefit Orange County and California. Specifically, Hanley says, he has noticed that California-based investors that
had previously abandoned the state in
search of better investments elsewhere
are now re-evaluating that strategy.
“In general, retail has
slowed down, although
the A properties are still
leasing. Tenants are still
looking to do deals.”
MARK BAZIAK
Grubb & Ellis
“There are investors that feel that if
they can sell properties in other states,
they will, because they believe opportunities will present themselves in California
in the next two years,” Hanley says. “That
capital is coming back. They don’t have
enough capital to redeploy here yet. But
those investors are less focused on placing capital out of state and are instead
more focused on finding better opportunities and returns in California.”—SOCAL
