Office Investment Volume Matches 2017 Numbers

Office investment activity is matching the robust deal volume of 2017. Throughout Southern California, there continues to be capital chasing deals, but the interest is especially strong for Orange County product. In addition to strong investment demand, there is also a healthy investment market with more than $1.3 billion worth of investment opportunities above $25 million on the market in Orange County.

“Demand for quality office projects continues to be very strong up and down the West Coast, and particularly in Orange County,” Paul Jones, VP at Newmark Knight Frank who recently completed the largest office investment acquisition of the year in Orange County, tells GlobeSt.com. “With approximately $1.3 billion of office transactions valued at $25 million or more currently on the market in Orange County—10 of which are north of $70 million and the historical Orange County transaction size average is $40-50 million—2018 has continued the momentum we experienced in 2017. There is no shortage of capital chasing these deals and we expect the second half of 2018 to finish strong.”

While the investment market remains robust, the office leasing market has seen some softening this year and increased vacancy rates. It hasn’t happened yet, but some experts expect rental rates to fall this year—and that could impact investment demand. In Aliso Viejo, where Jones completed this year’s largest office investment deal, that trend has started to take hold. “The ~2.5-million-square-foot Aliso Viejo, class-A office market experienced some softening just before we launched the Summit, with double-digit availability,” he says. “We were confident that, based on the size of the submarket, investors would underwrite and price through this short-term blip and believe in the long-term, healthy fundamentals.”

Leasing activity, however, has been volatile, which is why the investment market hasn’t been impacted. In Aliso Viejo, there was a surge of activity just before the sale of the property. This volatility, when leveraged correctly, could be a benefit to buyers. “Over the last 45 days, Aliso Viejo has experienced tremendous leasing velocity with many of the larger blocks of space anticipated to be leased before the end of the year,” adds Jones. “This shift in momentum has swung in the favor of our buyer and put them ahead of the curve, which will be bolstered by their plans to reposition and rebrand the Summit to push market rents, drive leasing velocity and create a campus unlike anything else in the submarket.”