IRVINE CA—Orange County's healthcare sector has remained strong since the recession, and now the financial and banking arena is recovering. This according to a first-quarter Office Insight Report from Jones Lang LaSalle. The report was compiled by Jonathan Ruffalo, senior analyst at JLL's Irvine Orange County office in Irvine.
Following the recession, the financial services, insurance, real estate and escrow industry underwent a massive employment and leasing activity pullback, whereas the healthcare industry stood untouched and continued to add jobs and office space.
Today the healthcare industry continues to make gains without any sign of slowing and the financial services sector is pointing toward momentum growth, the report states. Over the course of the next two years, Orange County expects 2.9 million square feet of additional tenant requirements with 29% of demand coming from the banking and finance sector and 20% of active tenants demand stemming from the healthcare industry.
Tightening vacancy rates and escalating rental costs have pushed active tenants located in the south county market to contemplate migration into other markets as their lease terms near expiration. Currently a two-story campus owned by the Irvine Company is 98% occupied and there are only eight class A spaces with availability in excess of 15,000 square feet. Going forward developers would be best suited to focus attention on creating class A projects in the south county to satisfy a growing demand base and capitalize on the fact that the county has the highest aggregate rental rate in all of Orange County.
Core deals will represent a majority of sales activity going forward, rendering a yearly growth rate of 6% in price per square foot until 2017. The spike in 2012 was due to the sale of 3161 Michelson, and the 2013 to 2014 sales price drop transpired from a majority of deals representing value-add opportunities with significant vacancy rates, the report notes. As rental rates continue to appreciate due to tightening vacancy rates, investors will capitalize on the higher income translating into higher sales prices. JLL expects to see cap rates remaining relatively unchanged in Orange County due to a stagnant treasuries market.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more inforrmation visit Asset & Logo Licensing.
