Leasing Activity
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The Orange County market consists of 96.6 million s.f. of Class A and B properties. Rental rates continued to rise, despite increasing direct vacancy levels, which have increased to 12.9 percent from a low of 7.5 percent just 5 quarters ago. Asking rental rates for office properties in the John Wayne Airport area range from $37.20 - $53.50.
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The unemployment rate grew from 3.5 percent to 4.1 percent in the last quarter.
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Concessions in the form of higher tenant improvements that can be used as a credit against rent, moving allowances, cash bonuses and free rent are offered when Landlord’s require high face rates for financing purposes. There has not been an erosion in rental rates yet, but once concessions are extinguished, rates will fall.
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Construction is complete on six new office towers totaling 1.97 million s.f. (85 floors) that are less than 15 percent pre-leased. Year-to-date the Orange County market saw 800,147 s.f. of negative absorption.
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In one of the largest transactions of the quarter, GE Capital consolidated its Anaheim and Newport Beach offices into 51,000 s.f. at Jamboree Center.
Building Sales
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After a year in negotiations, H&R Block failed to sell One Mortgage to Cerberus Capital Management and announced that it will close its 246,000 s.f. of OC offices, resulting in the loss of 630 jobs.
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Private investors, Wall Street and Institutions flush with cash have chased up purchase prices, however, the music has stopped as financing becomes problematic.
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Nearly $4 billion in OC office sales has occurred year-to-date, four times more than in all of 2006, as a result of large portfolio acquisitions and subsequent sell-offs by Blackstone, EOP, Maguire, Arden, and others.
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The decrease in viable office buyers is contributing to a rise in capitalization rates of 6.5 percent to 7.0 percent.
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Greenlaw Partners LLC bought 2099 S. State College Blvd. in Anaheim for about $32 million or $262/s.f.
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Maguire Properties has pulled Main Place and Hutton Center properties off the market as sales prices diminish in the face of a weakening market.
Construction Activity
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Panattoni is in escrow to purchase Boeing’s Anaheim facility for redevelopment as The Canyons, a 100 acre site, located at La Palma and Miller.
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Planned constructions, especially residential condominiums, have been shut down in midstream by Lennar and Olson until the economy changes.
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6.7 million s.f. of commercial development over the next six-to-eight years is planned by Shea Development at Legacy Park, located in Tustin on the former Marine Helicopter Base.
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