Connect OC: Volatility Continues to be the Elephant in the Room

The words of the day were industrial and volatility as some of the top leaders in Orange County commercial real estate, development and finance participated in panel discussions at Connect Orange County 2022, a one-day gathering hosted by ConnectCRE at the Balboa Bay Resort in Newport Beach, CA.

The conference kicked off with The OC Industry Leaders panel, which was moderated by Newmark’s Greg May and included Greg Brown, senior managing director of JLL’s OC office; Scott Sowanick, managing director of Stream Realty’s West Region; Aaron Hill, CEO and president of Bixby Land and Timothy Ballard, president and CIO of Buchanan Street Partners.

During this session, the panel offered their insights on markets in multifamily, self-storage, office, industrial and finance in Orange County. But layered within the comments, and it was abundantly clear, industrial was the rainbow of CRE, while volatility was a storm that refuses to move out.

For Hill of Bixby Land, he said he recently heard a term that seemed appropriate for the current state of the CRE market, “violent volatility.”

“The level of volatility is unusual, and it has made things exponentially more challenging across the board. When you see swings in equity markets like it has been, our space is no longer isolated and it’s in the basket with all the other investments. So, I think that volatility has created a lot of uncertainty.”

Brown echoed Hill’s comments, adding: “We are certainly in an area of uncertainty and markets don’t like uncertainty. One thing I think we can all be pretty certain about is that interest rates will continue to increase as the Fed continues its fight against inflation. With unsustainably low interest rates driving cap rates down, I believe investors and lenders are all trying to figure out how to appropriately price risk.”

However, while the panel had mixed views on where this market might be heading in these volatile times, one very bright spot was the continued success of the industrial market.

Ballard of Buchanan Street Partners, who said real estate fundamentals have never been better in the public storage market, called the industrial market the “bright spot.” He pointed out that office rents are equal to industrial rents, which is mind boggling. The vacancy rate in OC’s industrial market is 2%, 1% in LA and .8% in Riverside.

Sowanick of Stream Realty characterized the fundamentals in industrial as “rock solid.”

“The question is that we’ve been in such a vicious seller’s market, will this daily dance of whether or not this is going to change remain? We’re all hoping it does, the question is when and if that happens. So, it’s up to us to start educating the market.”

Sowanick added that IE rents are up 120 percent and land price is up 200 percent. “The supply is insanely tight. Long term play, industrial in So Cal is in a phenomenal place. Banks are still looking at this industry and it’s also driving the marketplace.”

More from the Connect OC Event tomorrow

Pictured left to right: Greg May, Tim Ballard, Aaron Hill, Greg Brown, Scott Sowanick