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Optimism slips a bit for O.C. Commercial Real Estate, survey says

February 23, 2016


The folks who own and manage the region’s biggest properties may be seeing a future chill in their climate.

Local commercial real estate executives remain generally optimistic, but that enthusiasm is decidedly tempered, according to the latest biannual edition of the Allen Matkins/UCLA Anderson Forecast. It surveys local real estate executives about their three-year outlooks for key industry segments.

A broad economic revival brings strong job growth, and a modest amount of new development keeps many property owners in a good spot for property values, vacancy rates, rent increases as well as for future development opportunities.

“There is still room for improvement, but people are smart enough to know that six-plus years into a recovery that things don’t go on forever. They getting more cautious,” says John Tipton of Allen Matkins, a law firm well-known in real estate circles.

Here’s how the Matkins/UCLA survey saw key slices of Orange County’s commercial real estate market.

Office: Orange County’s optimism score trailed only Los Angeles among the six California markets tracked.

The survey found shrinking optimism over two years for Orange County’s office vacancy rate, but that cooling enthusiasm may reflect the limited amount of empty space. Hopes for rising rental rates are strong, but still at a two-year low.

“This was a market that was hit very hard in the downturn,” Tipton says. “So it is coming back a little late. But once it got its footing, the last couple of years it’s been among the strongest markets in our survey.”

Apartments: Limited vacancies puts landlords in a good spot, until new development puts pressures on rising rents. Orange County optimism ranked fourth of five California markets tracked.

“People still need a place to live,” Tipton says. “But supply is starting to meet demand.”

Industrial: Orange County ranked fifth out of seven California markets tracked for optimism for warehouse and factory spaces. But the local markets remains strong with virtual no empty spaces.

“The market is always going to be tight,” Tipton says. “In all coastal communities, it’s not like there’s a ton of industrial space. The land costs so much, so there a ton of warehouses in the Inland Empire where land is cheaper.”

Retail: This is the first time this survey has tackled this real estate niche, which has shown surprising resilience despite the draw of shopping dollars to online merchants. Orange County retail optimism was second only to Los Angeles, among the six California markets tracked.

“What you do see is that people still like to get out of the house,” Tipton says. “But they don’t want to go to their enclosed mall or Kmart.”

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