Commercial Property Market Shows Signs of Life : Real estate: After four dormant years, analysts see good news for manufacturing, warehouse and retail space. Bankruptcy not a major factor.

IRVINE —  After lying dormant for four years, Orange County’s commercial-industrial property market stirred to life in 1994 and seems headed for steady growth this year, analysts for two of the region’s largest commercial real estate brokerages said Thursday.

Not even the county government’s Dec. 6 bankruptcy filing, which rocked financial markets and raised questions about the area’s economic stability, is likely to be a major factor, according to separate reports by CB Commercial and Grubb & Ellis Co.

John Ollen, senior vice president of CB Commercial’s Laguna Hills office, said that 1994 brought “good news in all areas of the market.” Rising rental fees and falling vacancy rates, he said, “point to a growing confidence in the market” and “a solid recovery in 1995.”

Even the industrial market, moribund since 1990, perked up, Ollen said. No new buildings have gone up on speculation in years, but that very lack of new space has caused companies that need additional room or different locations to fill manufacturing and warehousing space that once sat unused in the county’s industrial parks.

As existing vacancies fill, Ollen said, new construction for both the build-to-suit and speculative markets should follow.

In the office market, Orange County is showing Southern California’s most consistent and steady improvement, said George Economos, Grubb & Ellis’ Anaheim-based regional economist.

Speaking to an audience of local investors and business executives at a panel in Irvine on Thursday, Economos said that, unlike Los Angeles County, Orange County in the 15 years that Grubb & Ellis has been tracking the market has never had a quarter in which the amount of vacant office space grew.

Only one new office building was completed in the county in 1994, he said, but the 216,000-square-foot structure in Xerox Centre in Santa Ana was 75% leased on the day it opened, a sign of strong demand for so-called Class A office space.

Still, Economos said, the county’s business community is still feeling the effects of a lengthy recession and corporate cutbacks, which meant that the amount of empty office space filled last year was down almost 25% from 1993.

While the CB Commercial and Grubb & Ellis reports both predict continued growth, they present strikingly different numbers because of variations in the types of data gathered and the methods used to analyze the figures.

CB Commercial, for example, reported that the office vacancy rate in the county fell to 16.1% at the end of 1994, while Grubb & Ellis pegged it at 17.7%. Grubb & Ellis includes subleasing activity, however, while CB Commercial does not. Both numbers are four-year lows.

Looking to 1995, Grubb & Ellis’ Economos predicted continued strengthening of the office market, with medical, health care, computer, entertainment, insurance and legal firms all seeking additional space. He said office vacancy rate should fall to about 12% by year’s end.

Both reports said the retail market is the hottest segment of the county’s commercial real estate industry and should remain that way through 1995.

CB Commercial calls for “an influx of quality developers with capital and tenants in tow.” The trend, Ollen said, is for more entertainment-oriented retail centers anchored by cinema complexes.

Builders broke ground on more than 2 million square feet of new retail space in the county in 1994, Grubb & Ellis reported, with much of the activity occurring in South Orange County’s planned communities of Foothill Ranch, Aliso Viejo and Rancho Santa Margarita.

This year the expansion will continue, with South Orange County remaining the hot spot as its population, new home sales and retail sales all continue growing, said John Davidson, senior vice president of Grubb & Ellis’ Newport Beach office.

Current and planned construction will add more than 1.1 million square feet of space to the market in 1995 and 800,000 square feet in 1996, he predicted.

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Vacancy Rates Improve

Two of Orange County’s biggest commercial real estate brokers reported that vacancy rates at the end of 1994 were showing signs of improvement. The rates, from CB Commercial and Grubb & Ellis, differ because of variations in the types of data gathered and the methods of analysis.

CB COMMERCIAL

Office

Area 1993 1994 North 16.1% 15.5% Central 19.8 22.8 West 22.8 20.9 Airport 14.8 13.4 South 13.8 11.9 Total 16.4% 16.1%

Industrial

Area 1993 1994 North 11.3% 8.5% West 11.7 9.5 Airport 14.8 10.8 South 12.6 7.4 Total 12.5% 9.3%

*GRUBB & ELLIS Office

Area 1993 1994 North 16.6% 15.6% Central 20.5 22.2 West 19.9 17.5 Airport 17.3 16.6 South 15.9 14.0 Total 18.1% 17.7%

Manufacturing, Industrial

Area 1993 1994 North 13.5% 10.5% Central 12.9 9.9 West 19.8 15.6 Airport 16.2 14.9 South 13.8 11.4 Total 15.3% 12.6%

Research and Development

Area 1993 1994 North 11.2% 23.2% Central 17.2 14.9 West 13.5 13.9 Airport 16.4 16.5 South 19.5 12.5 Total 15.8% 16.5%

Retail Centers

Area 1993 1994 Central Coastal 3.0% 3.1% North 6.1 8.0 Central 8.4 8.0 West 7.1 6.7 South 5.8 6.3 Total 6.3% 6.7%

Sources: CB Commercial and Grubb & Ellis