Huge Rental Growth Potential in OC Sectors

ORANGE COUNTY, CA-Moving into 2014, Orange County faces several challenges and has numerous strengths for commercial real estate investors. GlobeSt.com spoke with Robert Brunswick, CEO of Buchanan Street Partners and keynote speaker for the third annual SPIRE Awards in Costa Mesa in February, about those challenges and strengths and how he feels the county compares to its California neighbors to the north.

GlobeSt.com: What are the most relevant issues facing commercial real estate issues in Orange County today?

Brunswick: The broader government policy-making is continuing to make it difficult for businesses to operate, with too much regulation and overhead cost prompting business decision-makers to evaluate alternative locations. Also, certainly the recent cost-of-capital movement and projection for future movement raises questions regarding cap rates, rent growth and the cost of housing. In addition, a high percentage of 2015/2016 loans are coming due, which could present stress to the system, and lack of available and cost-appropriate industrial product here is a concern. Of course, the big one is the housing shortage and expensive occupancy cost for the majority of companies' employees.

GlobeSt.com: What qualities make Orange County a desirable and strong place for real estate investment?

Brunswick: Both office and industrial product rents are artificially low and extremely well positioned for huge rental growth over the next few years. Expect office rents to start growing aggressively in 204 and ramp up from there. Quality industrial product has been increasing at a 5% to 10% clip for the last 12 to 18 months, and we expect this trend to continue. Big upside in both office and industrial!

Skilled labor, high-quality product, very low vacancies (industrial 3% and office 12%—some of the lowest numbers in the nation), executive housing, diversified economy and industry and excellent education [are also strengths.] OC is very quickly becoming one of institutional real estate investors' favorite geographic regions. Also, job growth in OC has been fairly strong relative to L.A. and the rest of California.

GlobeSt.com: How does Orange County stack up against L.A. and San Francisco in terms of redevelopment?

Brunswick: All three markets have been and are still extremely well positioned to outperform most of the nation. There is aggressive development and institutional investment in all three markets, which is most indicative of a strong tenant-demand and capital-demand market. The greater San Francisco market region is probably best positioned because of its tremendous job growth and ground-zero location for technology and venture capital. Although OC and L.A. are both very well positioned, I believe L.A. has more pockets of business that have not rebounded yet, in contrast with OC, where almost all submarkets have already made the turn. Both are extremely strong. You cannot go wrong in any of these regions.