CBRE’s Jeff Moore Q&A: Positive Economic Climate, Strong Demand Extend Runway

By Dennis Kaiser

Connect Orange County is just around the corner. The annual gathering is set for August 22 at The Resort at Pelican Hill in Newport Coast. More information about the event can be found here.

Connect Media asked CBRE’s Jeff Moore to share a few insights about the trends driving the market, strategies at play, as well as what deals are getting completed at this point in the cycle. Check out his responses in our latest 3 CRE Q&A.

Q: What are the overall trends you see playing out in Orange County so far this year? Is there runway left, or should companies prepare for a downturn?
A: The fundamentals have remained strong for commercial real estate in Orange County through the first half of 2019 and are expected to remain strong for the remainder of the year, including attractive debt, low vacancy rates and stable-to-rising lease rates across all sectors of the market. Cap rates remain at or near all-time lows, although have pushed up this year slightly for assets that have leasing or credit risk. Investor and occupier gaps in expectations are causing the transaction cycle to be slower than the past and some feel we are getting “late in the cycle” and decision-making is more cautious. Creative office and agile workplace concepts continue to be a major trend, as occupiers seek flexible modern environments. Demand for industrial space continues to exceed supply, while stimulating rent and sale price increases. In the retail space, the best located, and anchored shopping centers continue to demand increasing rental rates along with low vacancies. All other retail faces challenges, as the depth of active tenants remains shallow outside of restaurants, healthcare and fitness users. Grocery-anchored centers are favored over power centers because of the consolidation of big box users. Multifamily remains red-hot with all-time low cap rates for good product and attractive financing.

We continue to see runway ahead for all product categories for Orange County due to the positive economic climate and strong user and investor demand for coastal markets with strong densities and demographics. Because of some uncertainty regarding the length of the cycle, however, deals may take longer to close, and the depth of the buyer and tenant pool may be limited.

Q: How are CRE companies adjusting their decisions based on those factors and how should they be?
A: Because of the long real estate cycle, some investors are seeing this as a good time to sell non-core assets. Buyers are cautious and doing more diligence before closing. Low interest rates are looked at as positives by both sides. Landlords of commercial buildings are looking to lock-in credit tenants at higher rental rates, including escalations while vacancies remain low. Tenants are looking for more flexible terms to adjust for future growth or right-sizing needs. They do not know what the future holds, so they will pay a premium for flexibility.

Q: What are some examples of deals you’ve seen that reflect the market realities?
A: There are too many to list, but a couple in the recent past illuminate nicely the points I just raised. For example, in July we facilitated a $128.5 million purchase of the Los Alamitos Corporate Center by Alere, a pension fund advisor, showcasing the continuous strong demand for industrial property in the region. And, earlier this year, we announced coworking company WORK WELL WIN signed a 25,348-square-foot lease at new creative office campus FLIGHT @ Tustin Legacy. The 870,000 square-foot mixed-use campus, located at Flight Way and Barranca Parkway, is one of the highest-quality and most-efficient projects in Southern California at this time.

In the multifamily space, we see a lot of 1031-exchange activity. Earlier this year, CBRE arranged one of the larger and more complicated ones in Orange County, the trade of five multifamily properties for a total of $27.6 million.

In the retail space, a more notable transaction this year includes the acquisition of the Anaheim GardenWalk, an open-air retail and entertainment center, by a partnership of Californian and Taiwanese investors for $80 million.

For comments, questions or concerns, please contact Dennis Kaiser