Holdner: u201cIndustrial investors are picking up class-B office product because they can't find the industrial properties they're looking for.u201d

ORANGE COUNTY, CA—Office properties up for sale in Orange County are so scarce that investors are looking beyond their “comfort zones” in order to purchase assets. According to a mid-second-quarter report from Voit Real Estate Services, “investors are now reaching beyond the best submarkets to pluck up anything with a pulse.”

Jerry Holdner, VP of market research for Voit, tells GlobeSt.com, “There are so few class-A assets out there at the moment for sale and a lot of investors are looking for buildings. In Orange County, they like to buy class-A office assets, which are mostly in the Irvine submarkets, but now they’re looking in North County, West County and different parts of the market where they typically haven’t looked before. They’re extending their geographical reach.”

Investors are not only going outside of their geographical comfort zone, but also outside of their asset class, Holdner adds. “Some investors are looking at the class-B stuff, which is not always a good play for every investor.”

In examining value-add properties, some investors are going into product types they weren’t involved with prior to the recession, says Holdner. “Industrial investors are picking up class-B product because they can’t find the industrial properties they’re looking for, and this has been a trend for the last few years. Consequently, this has helped keep cap rates low for the last few years.”

The report also indicates that median sales prices are rising, and Holdner says this is due to lack of supply. Sales volume for office product rose at the end of 2013 with 27 trades in Q4, but the number dropped to 10 trades for the first quarter of 2014 and only eight by mid-second-quarter.

Occasionally, a large office trade does happen in this county. As GlobeSt.com reported last week, a partnership between Lincoln Property Co. and GEM Realty Capital has sold One Pacific Plaza, a three-building, class-A trophy office property in Huntington Beach, for $93.6 million, or $244 per square foot, to Prudential Real Estate Investors. The property, which includes a 12-story main tower and two six-story mid-rise buildings for a total of 384,303 rentable square feet, has flexible floor plates that allow for single- or multiple-tenant configurations and a parking ratio of 4.2 spaces per 1,000 square feet.

Meanwhile, the industrial market here has even fewer trade opportunities to offer than the office market. Holdner says vacancies are down around 4%, the lowest point since Q4 ’07. The fourth quarter of ’06 saw an industrial vacancy rate of 3.4%, which is the lowest it’s ever been, he says.

But drastically low vacancy rates are not spurring industrial development—nothing is currently under construction. “A lot of developers are waiting for rents to creep up and for land prices to be right. Land is going up at a faster rate now.”