Office Prices Skyrocket in All Classes

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IRVINE, CA-GlobeSt.com has learned exclusively that office sale prices are soaring in all product classes and continue to rise at a rapid pace, according to Jones Lang LaSalle. With the county's largest sale of the year recently closing, the purchase of 2030 Main St. by a New York City-based real estate investment firm Praedium Group from an unnamed institutional advisor for $114 million, it's evident that sales prices have skyrocketed over the past year.

Most of the office trades in Orange County are occurring in South County, particularly in the Irvine Spectrum and Airport Area submarkets, Baker Morphy, VP at JLL, tells GlobeSt.com. “Deals are being transacted right now. Investors are optimistic about the market.”

Compared to last year, Morphy says there's currently a lot of sales activity going on in the market. One reason is that even though prices are rising, most buildings in this market are a bargain compared to other major Western markets like San Francisco and Seattle. “If you look at prices on a per-square-foot basis relative to other markets, Orange County is still extremely low,” he says. “Our averages per square foot are lower than the rest of the market, so investors realize that there's an opportunity there. I honestly think that rental rates are going to continue going up, and with rental-rate growth, you also increase price-per-square-foot growth.”

He adds that sales prices are expected to continue to increase throughout the rest of the year, and deals the caliber of 2030 Main St. will become more commonplace, particularly as landlords begin to see the kind of prices other properties are commanding and are encouraged to sell. “What owners tend to do is buy a partially leased building, lease it up and sell it for core pricing. There's good leasing momentum in certain markets driving prices up.”

Also, as GlobeSt.com has reported recently, JLL has found that office vacancies continue to shrink in the county. Morphy says that in South County, the class-A product is extremely tight from a vacancy standpoint, ranging from 3.5% to 4%. “There's no availability—that's why you're starting to see class-B product, particularly in the Spectrum, move. There's not a huge base of class-A product, compared to the Airport area, but when vacancy is so low and there are huge asking rents in that market, this will be cause to start pushing their rates. There are good drivers now in the South Orange County market.”

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