Forecast for ‘90s Shows Shift to County’s Center : Real Estate: Coldwell Banker foresees a slowdown in office, factory construction. Foreigners are likely to acquire many more major buildings in the area.
As many as 600,000 more residents may move to Orange County this decade, and many of them will live in or near the central part of the county. Over the next 10 years foreigners will almost certainly wind up owning many more than the 35 major buildings they own now. And the boom in office and factory construction that marked much of the 1980s may slow down considerably as defense spending slackens in the 1990s.
That’s the word from Coldwell Banker, the county’s largest commercial real estate broker, which talked to reporters Wednesday about what the coming decade holds for the real estate industry.
Here’s what the brokerage said:
* Most of the offices--and much of the factory space for high-tech companies--will be built in three major areas: around the Irvine Co.’s Irvine Spectrum at the junction of the San Diego and Santa Ana freeways; near John Wayne Airport, and near the downtown districts of Santa Ana and Anaheim in the county’s central core.
* With traffic choking the freeways and house prices beyond the means of most, many of those 600,000 new residents will rent or buy condominiums close to these employment centers, said John Ollen, a Coldwell Banker vice president.
* But some companies are looking for factory space farther south than the Spectrum, in part because their managers may live in South County and don’t want to face the horrendous commute north on the San Diego Freeway. Even the relatively quiet beach towns of San Clemente and San Juan Capistrano “are seeing some demand for industrial space from people who aren’t willing to face that drive,” said David M. Salazar, a Coldwell sales consultant.
* The mergers and buyouts of big retailers seen in the 1980s are likely to be far less prevalent this decade, given the bankruptcies of companies like Campeau Corp., which choked on the cost of buying big department store chains. This means, for instance, that fewer supermarkets are likely to be closed as merging chains consolidate their stores. Look for the 1990s to bring more movie theater chains to the county, the Wal-mart chain, more foreign retailers like Stor, and lots more discount stores. More than half the store space in the county is being built in its southern half, said Craig A. Jones, a senior sales consultant, and that’s likely to continue since most of the recent population growth has been there.
* In terms of larger office buildings, the county just reached 49 million square feet, more than many large cities. The vacancy rate dropped slightly, to 21.5% from around 22%. That’s about par for suburban markets across the country. Overbuilding has given office developers the blues nationwide, as here. Rents are flat because there are so many vacancies for tenants to choose from, said Charles L. Sullivan, an assistant vice president. Cutbacks in defense spending, troubles in the computer industry and other potential problems mean uncertainty for the office market. The county will probably see bigger office buildings with larger tenants in the 1990s, most of them local companies that have outgrown their present quarters, Sullivan said.
* Foreign investment in Orange County land and buildings tripled in the last few years, from $300 million in 1987 to $1 billion in 1989. Led by the Japanese, foreigners have piled up 35 major buildings so far, and local developers with empty buildings running up interest costs will probably be tempted to sell them still more buildings. Big U.S. investors like pension funds--burned by owning offices--have been fleeing to the factory and apartment markets to look for purchases, said Joseph A. Leon, an investment specialist at Coldwell Banker. But they’ll soon find those markets crowded too, says Leon: The Japanese and other foreigners are also moving in.
Separately, Grubb & Ellis reported its own vacancy rate for the somewhat broader group of buildings it surveys. The big brokerage calculated an office vacancy rate of nearly 21% for the 50.5 million square feet of space it surveyed at the end of 1989. The broker said tenants leased an additional 3 million square feet of office space last year, and it counted 2.7 million square feet under construction.
FOREIGN INVESTMENT
Investment in Orange County real estate has increased dramatically since 1987, lat year surpassing $1 billion for the first time. In millions of dollars. 1987: $308. 1988: $506. 1989: $1,004.
Source: Coldwell Banker
ORANGE COUNTY’S OFFICE MARKET
Persistently high vacancy rates and a slowdown in defense spending are expected to force a slowdown in the office-building boom that characterized the last half of the 1980s in Orange County. Here are the figures, city by city, for the fourth quarter of 1989:
Total Average Office Vacancy Lease City Space Rate Rate Anaheim 2,901,379 25.05 $1.49 Brea 1,522,063 19.90 1.60 Buena Park 214,832 68.32 1.52 Costa Mesa 4,176,792 24.36 1.74 Cypress 623,744 31.90 1.55 El Toro 398,608 15.84 1.61 Fountain Valley 760,130 18.24 1.39 Fullerton 962,061 11.84 1.37 Garden Grove 956,566 9.36 1.31 Huntington Beach 1,149,273 20.28 1.58 Irvine 12,068,451 20.87 1.84 La Palma 393,672 29.62 1.45 Laguna Hills 1,722,912 18.71 1.64 Laguna Niguel 267,124 65.97 1.85 Los Alamitos 136,324 44.50 1.02 Mission Viejo 584,052 6.47 1.75 Newport Beach 6,014,570 17.64 1.93 Orange 5,037,862 19.72 1.67 Placentia 109,160 17.95 1.51 San Juan Capistrano 383,528 15.87 2.04 Santa Ana 6,741,181 25.04 1.58 Seal Beach 324,505 22.17 2.00 Stanton 82,424 8.36 NA Tustin 725,696 23.54 1.37 Westminster 299,846 12.25 1.47 Yorba Linda 46,708 91.44 1.25
Source: Coldwell Banker Commercial Real Estate Services
