OC Apartments and Office - Analysis and Forecasts (Q4-2017)

Pearson RE Group
Oct 28, 2017
3 min read

"...read all about it!!"

Check out the links below for a deep dive into the fundamentals, economic overviews, rents, sales, and everything in between, covering the Apartment and Office markets here in Orange County.

Filled with current data, retrospect, and forecasts, these reports (courtesy of CoStar Group) are an invaluable resource to keep abreast on both the macro and micro events affecting the OC Apartment and Office markets.

The cliff notes:

OC APARTMENT - Analysis and Forecast

Fundamentals:
...with home prices bumping up against $800,000...housing market continues to price out many residents...
...within the next 5 years, it's expected that Orange County will fall more than 40,000 housing units short of expected new households...
...demand drivers in Irvine and South County are solid - although a wave of supply might push vacancies above historical averages...Anaheim and Central County may be more susceptible to the high pace of development, given the softer demographics and fundamentals.
Economic Overview:
...economic growth outpaced the nation's over the last several years, although growth is falling back toward the national average and expected to slow...
...hiring in construction has been one of the best sectors over the last 12 months...with residential permits slowing, so too is construction hiring...
...professional and business services sectors propel the economy. Orange County is also the third-most diverse high tech sector in the nation, behind only San Jose and San Diego.
Supply:
...2017 lining up to be the peak year for deliveries this cycle...areas closest to [John Wayne] airport are a focal point for developers...
...Anaheim, specifically the Platinum Triangle, and Central OC submarkets also have a number of projects under construction...
...South County is another submarket in the midst of a supply wave that began in 2014...one of the most active submarkets in terms of residential construction...
Rents:
...continued disparity between income growth and rental growth may not be sustainable...
...rent control is not expected to spread widely across the metro, it may pass in Anaheim...Huntington Beach could be another area where rent control takes hold...
Sales:
...Orange County continues to be a target among local and core investors...
...Orange County boasted an extremely strong 2017...should match last year's [sales] volume and likely exceed last year's transactions...

OC OFFICE - Analysis and Forecast

Fundamentals:
...demand drivers are healthy...strong employment base buoyed by a diverse tech field and financial and business services provides stability that was not present during the last cycle...
...with a prime location along the coast...geographic contraints, and steady demand, vacancies remain low...
...one concern might be the amount of available sublet space - currently about 50% higher than the five-year average as of October, adding to the glut of available inventory...
...Irvine...providing residents an urbanized live/work/play environment sought after by Millenials...slowly transforming the master planned community...
...trend toward creative office is in full swing...
Economic Overview:
......economic growth outpaced the nation's over the last several years, although growth is falling back toward the national average and expected to slow...
......hiring in construction has been one of the best sectors over the last 12 months...with residential permits slowing, so too is construction hiring...
......emplyment sectors that have arguably propelled job growth over the last 5 years - leisure and hospitality, education and health services, retail, tech fields - have all noticeably slowed in teh last 12 months...
Supply:
...a flood of new spec office inventory set to deliver over the next several years...
...construction this cycle pales in comparison to the previous one...
...new spec construction hitting Orange County is notably different from past projects - very little is pre-leased...
Rents:
...rents grew at a healthy clip last year...continue to post healthy numbers in 2017...though off 2015's blistering pace...cumulatively they increased 15% between 2015-2016...
...the wave of spec space coming online could hamper growth for [high-end] inventory if leasing is sluggish and demand doesn't materialize...
...Irvine...the metro's central employment node, and Newport Center a focus of the financial industry, rents in these submarkets are among the very highest in the metro...
Sales:
...assets with 3 Star ratings (CoStar's equivalent to a Class B building) are the most commonly sold inventory, often among private investors...
...Cap rates have settled in the mid-5% range, almost 100 basis points higher that the apartment sector...
...2017 is on pace to easily exceed last year's [sales] level...