Solid Fundamentals, Demand Counter Challenges in Orange County

By Dennis Kaiser

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

Connect Media asked Colliers International’s Cody Cannon 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 Orange County economy is still expanding and is bolstered by a dense population, strong household incomes, solid job growth, and what is considered high consumer spending. All positive signs that despite any major global economic shifts should continue to bolster OC’s economic growth.

This year, the demand for light manufacturing, distribution, and warehouse properties continues to drive our extremely strong industrial market throughout the region. The focus for developers has continued to be build-to-suit properties, which indeed is over 80% of square footage in OC. In the office sector, many OC based companies are changing how they upgrade their office space, taking less square footage, while increasing amenities in order to attract creditable employee talent. As of June, Orange County unemployment is recording at 3%, gaining 24,100 jobs over the year. The largest year-over-year increase occurred in professional and business services, adding 8,200 jobs reflecting that office space demand is still very high.

Q: How are CRE players adjusting their decisions based on those factors and how should they be?
A: In case the market does turn, tenants are preparing by being as efficient as possible with their space, and cautious with their real estate decisions. There have been no delays with office/industrial tenants signing deals other than the “normal” summer slowdown. Office concession packages are status quo. The volume of renewals is the same for office. The office space givebacks we’ve seen are averaging 1,000 square feet – again, this is a result of tenants being as efficient as possible with their space.

Renewals for industrial space have increased due to the lack of available space, as old industrial buildings are being converted to multifamily and creative office space. With multifamily, the challenge is a lack of affordable housing as housing costs continue to rise. This demand bodes well into the future for investors in the OC region.

Q: What are some examples of deals you’ve seen that reflect the market realities?
A: Every deal pretty much reflects our economic times. Renewals are common, as companies continue seeking cost efficiencies by way of their real estate and in the case of industrial, because of lack of available product. Pepsi signing WeWork space at the Boardwalk.

Although Orange County was late to the co-working phase, co-working space in Orange County is currently growing at a fast pace.
– WeWork signed its eighth OC location in Newport Beach during 2nd quarter.
– Spaces signed at the Quad, its second OC location.  
– Other co-working companies that have signed space are Industrious, TechSpace and Servcorp.

For comments, questions or concerns, please contact Dennis Kaiser