Rate of Commercial, Industrial Building in County Expected to Slow During 1988

The flood of construction of new offices, factories and stores in Orange County will slow this year, and that’s especially good news for owners of factory buildings and warehouses.

New tenants leased a record 13.2 million square feet of space in factories, warehouses, light industrial and research and development buildings in the county in 1987, up by more than a third over 1986.

Construction of such buildings will slow again this year, as it did last year, meaning that space will be more in demand and owners will be able to charge more rent.

That’s the forecast from Coldwell Banker Commercial Real Estate Services, the county’s largest broker of commercial real estate. The company released its annual real estate forecast Tuesday, and it generally agreed with other forecasts by the county’s real estate industry in predicting a decline in construction for most types of commercial real estate.

Despite fears that high land prices might drive manufacturing companies from the county, the strong demand for factory space indicates that hasn’t happened yet, said Mark J. Mattingly, an assistant vice president for Coldwell Banker.

While Riverside and San Bernardino counties “are experiencing tremendous growth” in industrial space, the vast majority of that growth is in warehouse space, a type of building requiring cheaper land and uncrowded freeways, Mattingly said.

“There’ll always be demand for industrial space in Orange County,” he said.

The Irvine Co.’s big Spectrum center at the junction of Interstates 5 and 405 in Irvine continues to lead county projects, both in planned construction and demand, according to Coldwell Banker.

While industrial space will be the brightest spot in commercial real estate in the county in 1988, according to Coldwell Banker, offices won’t fare too badly either.

The county’s larger office buildings had a 22.2% vacancy rate at the end of 1987, up slightly from 1986 and about equal to the national average for suburban markets.

The rate will go up still further during the first half of this year, said Scott Perley, a Coldwell Banker vice president, as buildings already under construction come on the market. Most of the building is going on in the South Coast Metro/John Wayne Airport area and the Santa Ana area.

But demand for new office space also reached an all-time high last year at nearly 4 million square feet, up by a third from 1986; this year demand will fall to 3.5 million square feet, which is still relatively strong.

About 3.9 million square feet of office space will come on the market this year, outpacing demand and keeping lease rates for office buildings flat this year.

Office space now leases for about $1.35 to $1.50 a square foot, Perley said.

Retail space is the dark part of the picture in Orange County in 1988. It will be a record year for shopping center construction, far ahead of demand for retail space. By the end of the year, Orange County is expected to have 41 million square feet of retail space, up 9% from 1987.

“I don’t know if we’ll actually see rents drop, but we may see concessions (on the terms of leases) for the first time in retail if all the product that’s being talked about is built,” said Coldwell Banker Vice President Robert A. Peterson.

Coldwell Banker, a unit of Sears., also took the opportunity to tout its own operation Tuesday. Based on the amount of space it represents, Coldwell Banker said it has a leading 34% share of the Orange County office market. Grubb & Ellis is second at 6% and Cushman & Wakefield third at 5%, according to Coldwell Banker.

In industrial space, the company has a 30.5% share, followed by Grubb & Ellis at 16%.