Developable Land at a Premium, But Demand Will Continue to Outpace Supply Next Year

ORANGE, CA-Based on better than expected performance this year, combined with a strong and diverse local economy and the lowest unemployment in Southern California in recent years, Grubb & Ellis is forecasting that the Orange County market will remain strong for all product types in 2001–with some caveats.

Across the board, the biggest concern for brokers next year is the ever-decreasing amount of developable land for new product countywide. Instead, infill projects that reuse the land will dominate the landscape, offering new sales and lease opportunities for brokers to capitalize on. Still, the competition for those spaces will be intense, with rents continuing their upswing and vacancy rates remaining low.

In the office sector, Jack McNutt, a SVP based in the Newport Beach office, believes the lull in the market of the past 30 days will dissipate, with things returning to normal after the first of the year. “The market will continue. It won’t be robust, but it will continue to clip along nicely,” he says.

Although nearly five million sf of office and flex-tech space was built this year, the supply of quality class A product was hard to find. Next year won’t be any better as four million sf of product comes on line, with biotechnology, Internet-based companies, financial services, telecommunications and other traditional and high-tech companies competing to absorb the space at a brisk pace. Class A will be hard to find in the area surrounding John Wayne Airport, the most expensive area in the county, followed by the south county area. Grubb & Ellis’ recommendation: tenants should lock in lease rates for the long term.

On the industrial side, tenant demand outpaced construction of new product this year. By mid-year, industrial vacancy hit an all-time low in the county, and sale and lease activity was especially brisk for buildings with 10,000 sf to 25,000 sf. Big box industrial and R&D is rare and expensive.

Next year is going to be tight, Grubb & Ellis’ just released report notes. After a slow start, momentum in demand will pick up during the year, outpacing supply once again. Much of the 3.4 million sf of industrial and R&D space to be constructed will be devoted to reuse projects in the north and central county areas, with a focus on manufacturing and distribution companies.

Tomorrow . . . the forecast for retail and multifamily space!