Southern California Office Real Estate Blog

OFFICE MARKET UPDATE FROM THE LOS ANGELES TIMES

The Los Angeles Times recently confirmed all the apprehension we’ve been feeling about office lease rates. Brace yourself, the statistics are somewhat sobering.

The amount of rented office space in Los Angeles County has fallen by 1.3 million square feet this year.

That’s a small fraction of the roughly 189 million square feet available in the county, but last year at this time the county had a net gain of more than 2 million square feet.

Altogether, Los Angeles County had a vacancy rate of 11.6% including sublease space at the end of the third quarter, up slightly from 9.5% a year ago.

The situation is worse in Orange County, where office vacancy rates rose to 16.2% in the third quarter from 11% a year ago, spurred in large part by the closing of several lenders that specialized in subprime mortgage loans. In the buildings around John Wayne Airport, however, vacancy has surpassed 20%.

The picture is grimmer for landlords in the Inland Empire, where vacancies doubled over the last year to 23% but average asking rents came down only 6 cents a square foot.

Get the full story @ http://www.latimes.com/classified/realestate/rentals/commercial/la-fi-office17-2008oct17,0,4567848,full.story

HOW GREEN RENNOVATIONS PAY OFF

 

HOW GREEN RENNOVATIONS PAY OFF

 

 

 

 Green remodeling can pay off — not only in lowered utility bills, but also in buyer appeal when the property is sold.

Green Seal Certified

  

Here are some green things to consider:

 

 

 ~ Energy-efficient products. Choose Energy Star appliances, double-paned windows, low-flush toilets, and compact fluorescent light bulbs.

 ~ Spray foam insulation. Seal the home with insulation that doesn’t let the heat or cooled air leak out.

 ~ Sustainable wood flooring. Select flooring certified by Forest Stewardship Council, which protects forests by managing the amount of wood harvested annually.

 ~ Locally made products. Buy products made less than 250 miles away to reduce transportation costs. Granite, for instance, is generally imported from afar.

 ~ Nontoxic paint. Use paint that is low in volatile organic compounds (VOCs) — chemicals that evaporate into the atmosphere. Look for Green Seal certified brands.

 Source:

http://www.realtor.org/RMODaily.nsf/pages/News2007123106?OpenDocument

 

OFFICE MARKET STAYS STRONG OUTSIDE OF SOCAL

OFFICE MARKET STAYS STRONG OUTSIDE OF SOCAL

There’s some postitive news for office leasing outside of Southern California. In its third quarter office market reports, CoStar Group found that while leasing absorption may be soft, it is still positive….outside of the New York metro area, Florida/Georgia and Southern California.

http://www.3619motorave.jodisummers.com/

The volume of office building sales has fallen off dramatically, but about half of the U.S. office markets have experienced increases in the average sale price of those properties.

“I don’t have a big concern about our commercial mortgage portfolio. That’s not what I worry about,” notes Steven A. Kandarian, executive vice president and chief investment officer of MetLife Inc., sharing the thought of many real estate portfolio holders. “I worry more about the general economy across the board, where if we have volatility remain in this marketplace, that spills over into other financial institutions, into the general economy and impacts companies across the board because the consumer pulls back and has to pull back. That’s more of the downside scenario that we try and guard against.

“Even if there is a failure down the road by the borrower, we do believe we still have lots of value in these properties and that we will be able to recover high percentages of our loans in these cases,” Kandarian added.

Net absorption for the overall U.S. office market was positive 1.9 million square feet in the third quarter 2008. Overall, 26 of 41 markets for which CoStar publishes market reports showed positive net absorption with Boston coming in with 1.2 million square feet. Other markets showing more than a half of million square feet of net positive absorption included: Chicago, Dallas/Fort Worth, Indianapolis and Houston.

For the third consecutive quarter, Los Angeles had the lowest total absorption in the nation with negative 1.1 million square feet of net absorption. San Diego was second at negative 879,000. Other markets coming in with negative net absorption of more than a half of million square feet were: New York, South Florida, Northern New Jersey, Tampa/St. Petersburg and Atlanta.

The U.S. office market ended the third quarter with a vacancy rate of 11.7% up slightly from the previous quarter. This is the highest the national vacancy rate has been since the third quarter of 2005.

The markets with the highest vacancy rates in the country were Phoenix, with a vacancy rate of 17.4% and Detroit at 17.2%. The Inland Empire and Dallas/Fort Worth markets also came in with vacancy rates of more than 16%. The Inland Empire has seen its vacancy rate go up 6% in the last year (the largest increase in the country) from 11.2% to 16.1%.

The average quoted asking rental rate for available office space, all classes, was $24.32 per square foot per year at the end of the third quarter. This represented a 0.5% decrease in quoted rental rates from the end of the second quarter 2008.

Although, the national number dropped somewhat, still about half of the U.S. office markets came in with higher asking rental rates than the previous quarter. San Francisco, Salt Lake City, Orange County (California) and Providence (RI), all posted a 2% or more increase in asking rents.

In the second quarter, 423 office transactions closed with a total volume of $9.3 billion. Totaling 36.7 million square feet of rentable building area, the average price per square foot equated to about $254/per square foot. That compares to 451 transactions totaling $10.7 billion in the first quarter 2008 at about $247/square foot.

Total office building sales activity, however, is way down this year compared to 2007. In the first six months of 2008, the market saw 874 office sales transactions with a total volume of $20 billion. In the same first six months of 2007, the market posted 1,533 transactions totaling $52.4 billion.

The South Bay/San Jose and Austin markets have seen the largest drop offs in both volume and pricing, both markets were down more than 97% in volume (virtually nonexistent activity) with average price decreases of more than 50%.

Info from:
http://www.costar.com/News/Article.aspx?id=478B28120949CA06C1A5310247A9D992&ref=100

HEAT MAPS GIVES YOU FORECLOSURE STATISTICS

HEAT MAPS GIVES YOU FORECLOSURE STATISTICS

There are some incredibly creative people out there designing web applications. This week’s favorite is HotPads’ “Election Foreclosure Maps” that displays foreclosure rates for congressional districts. These “heat” maps use color coding to show which districts have the highest rate of foreclosures (dark red) vs. the lowest number of foreclosures (light blue).

Here’s what Los Angeles looks like…

According to the site, the average foreclosure rate is 0.47 percent in Democratic districts and 0.51 percent in Republican districts, and the median foreclosure rate is 0.15 percent in Democratic and Republican districts.

The congressional districts with the highest rate of foreclosures are represented by:

• Dennis Cardoza, D-Stockton, Calif. (4.59 percent)

• Mary Bono Mack, R-Palm Springs, Calif. (4.51 percent)

• Jon Porter, R-Henderson, Nev., (4.45 percent)

The congressional districts with the lowest rate of foreclosures are represented by:

• Peter Welch, D-Burlington, Vt. (0.001 percent)

• Jerry Moran, R-Hays, Kan., (0.002 percent)

• Gene Taylor, D-Gulfport, Miss. (0.003 percent)

Foreclosure data company RealtyTrac supplies foreclosure information to Hotpads.com.

Heat Mpas can be found @ this cumbersome link http://hotpads.com/search/election-2008#lat=38.61687046392973&lon=-115.13671875&zoom=12&bottomZoom=17&previewId=election-2008&previewType=area&detailsOpen=true&template=political&listingTypes=foreclosure&includeVaguePricing=false&pricingFrequency=once&loan=30,0.059,0&areaLabels=Congressional&areaBorders=heatMapForeclosurePerHousehold

Infor courtesy of http://www.inman.com/news/2008/10/7/heat-maps-reveal-politics-foreclosure

INVESTORS EXPECT CONSTRUCTION COSTS TO INCREASE

INVESTORS EXPECT CONSTRUCTION COSTS TO INCREASE

70% of investors have experienced an increase in construction costs over the past 12 months, and more than half expect an increase in the next 12 months, according to the 2008 Real Estate Investor Outlook, which consulted 1,000 seasoned investors.

The Outlook suggests that construction costs increased an average of 16 percent. Going forward, respondents forecast construction costs to increase six percent.

Many experts believe the slowdown in single-family housing construction has decreased demand for commonly used building materials, therefore mitigating extreme price increases.

“Demand for concrete and steel hasn’t dropped off because there are still a lot of projects under development that use these materials – particularly public projects,” observes Rick Cavenaugh, president and COO of Fifield Cos., a Midwestern developer specializing in multifamily and office properties.

Statistics show global demand for building products continues to grow. These market dynamics make a substantial price correction unlikely. In fact, only eight percent of respondents expect a major pricing correction, while 90 percent expect there to be a minor or modest pricing correction for commercial real estate assets.

SIOR PREDICTS THE COMMERCIAL REAL ESTATE MARKET

SIOR PREDICTS THE COMMERCIAL REAL ESTATE MARKET

Members of the Society of Industrial and Office Realtors^® indicate in their SIOR Commercial Real Estate Index, an attitudinal survey of approximately 600 local market experts, that they anticipate a lower level of business activity in the upcoming quarters.

Analysis of the SIOR index implies that office and industrial market conditions are excellent for tenants and purchasers, but significantly less favorable for landlords and sellers.

Info courtesy of http://www.realtor.org/press_room/news_releases/2008/commercial_real_estate_index?&WT.mc_id=LS082008&DCSext.CAT=Comm

CAP RATES WILL RISE

CAP RATES WILL RISE

Cap Rates are predicted to be going up in the next 12 months, marginally, mind you, but they will rise. Let’s look at the statistics, in October 2007, the average cap rate for commercial property was 6.94 percent, according to Real Capital Analytics. In 2006, the average cap rate was 7.12 percent.

Cap rates for top-tier properties are not expected to rise more than 25 basis points while cap rates for lower-tiered properties and markets will increase 50 basis points to 75 basis points, predicts Hessam Nadji, senior vice president and managing director of Marcus & Millichap Research Services.

“Many cap rates have been predicated on the availability of cheap debt, and that’s driven pricing to artificially high levels,” notes Bob Dougherty, chief acquisitions officer with Buchanan Street Partners “We’ve been underwriting a 100-basis-point increase in cap rates for almost two years because we’ve been expecting a correction. Now we think cap rates will return to historical norms of 200 [basis points] to 300 basis points over Treasuries.”

$40M FOR ONE OF THE LARGEST MULTI-USE TENANT CAMPUSES IN SOCAL

$40M FOR ONE OF THE LARGEST MULTI-USE TENANT CAMPUSES IN SOCAL

Koll/PER, a partnership of the Newport Beach-based Koll Co. and the Public Employee Retirement System of Idaho, has acquired the 313,367-sf College Business Park from the Newport Beach-based Wohl Investment Co. for $39.9 million. The property consists of 17 single-story industrial, office and flex buildings in a 24.55-acre business park that straddles the county line between Los Angeles and San Bernardino counties in Upland, CA.

College Business Park is situated at the northeast intersection of Foothill Boulevard and Monte Vista Avenue. The county line traverses through the property along Monte Vista.

According to Armando Enriquez, acquisitions manager for Koll Co., the investment firm was attracted to the property by its “exceptional location in a strong market area, great visibility, outstanding curb appeal and functional site layout.”

The concrete tilt-up buildings at College Business Park range from 13,369 to 22,426 sf, with tenant sizes ranging from 600 sf to 14,000 sf. The project comprises more than 200 suites, with 13 of its buildings offering small-unit warehouse and flex space with varying percentages of office-build-out. The other four buildings include 100% build-out. With 1,067 total parking stalls, the project has a parking ratio of 3.4 spaces per 1,000 sf of building space.

Enriquez notes that the property is one of the largest multi-tenant business campuses in Southern California, providing the flexibility of offering 100% office build-out and flex and industrial space in one project. This variety of product appeals to a diverse set of tenant types and the diversification “helps limit risk exposure to any one tenant type,” Enriquez says.

Lack of available large land parcels coupled with high land prices, creates barriers of entry that may minimize, if not prevent, future development of comparable properties nearby.