Q2 2012 Orange County, California Office Property Sales Analysis

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Q2 2012 Orange County, California Office Property Sales Analysis

Metro Volume and Pricing

Measured by the quarter, sales have been erratic through the recent period. Nearly duplicating first quarter’s performance, however, $26.7 million changed hands in three deals during the second. Second quarter’s $130 psf mean selling price, however, was well below the $506 psf average recorded for the quarter preceding. In the latest quarter’s largest transaction, Centurion Plaza LLC paid JS Northpointe LP $13.5 million ($97 psf) for the 138,759-square-foot Northpointe-Buildings A, B, and C on Red Hill Avenue in Tustin. The deal closed in April at a 9.5% cap rate. The multi-tenant Class B/C properties, built in 1989, were 75.0% vacant at time of sale. Selling the same month at a nearby site, the 48,000-square-foot Pointe Red Hill property at 15101 Red Hill Avenue traded for $9 million ($188 psf). 15101 Red Hill Partners LLC and Lone Oak Red Hill LLC were buyer and seller. The 1990-built multi-tenant Class B/C property was 100.0% vacant at date of sale.

As noted in Special Real Estate Factors, The Michelson building in Irvine has been placed on the market. A selling price in the neighborhood of $500 psf is expected.

Top Submarkets

With 702,812 square feet changing hands, the Airport submarket led all others in property volume sold over the past four quarters. It led in dollar volume as well at $206 million and ranked high in average selling price at $293 psf. The Central submarket followed with 652,804 square feet selling for $80 million. Close behind in dollar total was the West’s $78 million for 435,898 square feet traded. The highest average selling price was earned by the South submarket—$321 psf for 199,430 square feet exchanged.

Cap Rate Comparisons and Forecasts

Average cap rates measured quarterly have been uneven but generally not high. Thus second quarter’s 9.2% was an anomaly on the upper end. As noted, however, it covered only three transactions. Until the latest quarter, the 12-month rolling cap rate, a more reliable trend indicator, had shown a persistent gradual decline. The 6.9% 12-month rate calculated for the latest quarter, however, was up from 6.4% the quarter before. It was down, nonetheless, from the 7.1% 12-month rate calculated as of second quarter 2011. Reis expects the 12-month rate to stay close to 7.0% in the period ahead. 12-month rolling cap rates for the West and U.S. markets for the period were 7.4% and 7.5%, up from 7.2% and 7.4% the quarter preceding.