Study Sees Commercial Real Estate Growth

ORANGE —  Bursts of industrial and retail construction, coupled with continuing growth in the office market, should give Orange County’s commercial development industry its best year in nearly a decade, a major commercial real estate firm said Thursday.

In a forecast for the coming year, market specialists for Grubb & Ellis Co.’s Pacific Southwest Region predict:

* Fewer office vacancies--and possibly a shortage of office space--in highly desirable areas around John Wayne Airport and in south Orange County.

* A surge of demand that will bring single-digit vacancy rates and more than 2 million square feet of new construction to the industrial market.

* Higher office and industrial space rents in most areas of the county.

* A race by retail developers to secure choice sites along the newly opened 15-mile San Joaquin Hills transportation corridor that stretches from Newport Beach to San Juan Capistrano.

The best news in the report is for the beleaguered industrial development market. For the first time since 1988, Orange County employers last year added jobs in the industrial sectors of manufacturing, wholesale trade, and trucking and warehousing.

Because developers hadn’t tackled any new industrial projects in years, the expanding industrial segment soon gobbled up existing empty space, said Grubb & Ellis industrial specialist Lin A. Stinson.

And by the end of last year, he said, more than 3.3 million square feet of new industrial space had been opened--more than a third of it by speculative developers who did not line up tenants in advance. He is predicting that more than 4 million square feet will be built this year.

Rents for industrial space should rise an average of 10% to about 50 cents a square foot, with rates around the airport and in some areas of north Orange County and the developing South County jumping by 15%.

In the office market, the brokerage is predicting a 10% average rent increase to $1.54 per square foot--but as high as $1.70 a foot in the airport area--and a resumption of speculative development after several years in which there was literally no new office construction.

The Orange County arm of Texas developer Trammell Crow already has said it intends to build a 125,000-square-foot office building in Irvine. Other developers, including the Irvine Co., are talking up plans for their own luxury office towers to prospective tenants.

Retail developers had a pretty good 1996, tapping into a perceived need for entertainment venues anchored by multiscreen movie theaters to build several centers and rebuild many others.

That is expected to continue through 1997, with restaurants of all types getting into the market as they order up space in or near all the new entertainment-oriented centers.

But the big driver for the retail market, the report says, will be a move by major retailers to grab up premium locations along the San Joaquin Hills transportation corridor.

Overall, the report says, expect more than 2 million square feet of new retail projects to get underway, up from 1.3 million square feet in 1996.

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Commercial Real Estate Outlook

Market specialists say within the next two years, Orange County will have lower office vacancy rates and a shortage of industrial and retail space. The squeeze is expected to spur prices and stimulate construction.

Office

Vacancy rate

1994: 15.9%

1995: 15.0

1996: 12.9

1997: 10.7*

1998: 8.3*

Industrial

Research and development, manufacturing and distribution:

Vacancy rate

1994: 12.4%

1995: 11.3

1996: 8.8

1997: 7.4*

1998: 6.5*

Retail

Stores, shopping malls

Vacancy rate

1994: 6.7%

1995: 5.9

1996: 5.6

1997: 5.1*

1998: 5.8*

* Projected rate

Source: Grubb & Ellis Co.