Investors will want to snap up any Orange County malls, many industrial parks and some office buildings in 1988, but few of the juiciest properties will be up for sale.
That's the outlook from real estate brokerage Grubb & Ellis Co., which announced its annual forecast for Orange County commercial real estate Wednesday.
The October stock market crash, which at first gave big real estate investors a bad case of nerves, may now actually push more money from the stock market into safer investments in real estate, Grubb & Ellis said.
The problem in booming markets like Orange County is that few of the best properties will come up for sale this year.
Too Much Money
"It will probably be another case of too much money chasing too few deals," said Michael Randall, an institutional investment specialist with the company.
Here's what investors will be looking for in Orange County in 1988, much of it the same as in 1987:
Regional malls, the "absolute favorite" of institutional investors such as insurance companies and pension funds, will continue to be extremely desirable, Randall said. That's because the county's strong population growth and high-income levels keep the local retail industry especially strong, meaning mall owners can charge lucrative rents.
But developers are expected to hold onto even small, neighborhood shopping centers in the county, according to the forecast.
Though nearly a quarter of the county's office space will remain vacant this year, Grubb & Ellis said it expects investors to be interested in office buildings. Demand for office space remains strong, and it is only the continuing construction that keeps the vacancy rate high.
Must Have Tenants
And with many of the best buildings in big downtowns such as Los Angeles and New York having been snapped up, investors will increasingly look to the smaller buildings in the suburbs. While they will continue to want the biggest, fanciest buildings, even in the suburbs, investors will look at smaller buildings on one important condition: that they have tenants.
Many of those buyers will likely be Japanese, according to the forecast. Five of the last six big office buildings sold in Orange County were bought by the Japanese, who often pay extremely high prices, according to Randall.
"We've seen some ridiculous prices paid for office properties nationwide recently," he said.
And finally, plain old factories will also do well this year. While office vacancy rates pushed office rents down, rent for factories in parts of the county climbed last year. And since there's not much land left in the county that's zoned for factories, overbuilding probably won't be much of a problem.
RETAIL SPACE IN ORANGE COUNTY Square feet in thousands for all retail centers in Orange County with more than 50,000 square feet.
*Expansion/ New Development Renovation Leasable Constr. Constr. Constr. Constr. Area 1987 1988 1987 1988 Greater Airport 7,112 335 805 367 0 South County 7,992 466 770 0 0 Central County 10,080 96 555 1,244 105 North County 10,866 295 684 35 0 West County 13,873 630 793 200 222 Total 49,923 1,822 3,607 1,846 327
* Expansion square footage only
Source: Grubb & Ellis Research Services Group