Investor appetite for commercial properties is going to reach new highs in 2015, Irvine-based Faris Lee Investments CEO Rick Chichester tells us. More capital’s going to be flowing into the sector than ever before, both locally and nationally.
Key to the additional strength of the market this year will be increasing demand for investment properties, Rick says. “Foreign capital from areas like Eastern Europe and Asia will be extremely aggressive,” he says, adding to the already healthy demand from domestic investment sources. Also, he expects capital infusion from other sources, such as hedge funds looking to increase their allocations into the commercial real estate sector.
Macro-factors are at work, too. Low interest rates, combined with the increase in capital seeking risk-adjust yields, will mean further cap rate compression. Rick tells us sellers will have more opportunity than ever to monetize their equity and that now is the perfect time to look for a deal. Snapped: the 16k SF 16655 Noyes Ave in Irvine, which is fully occupied by Kiddie Academy, a daycare center. Late last year, Farris Lee repped the seller, while Treeline Realty repped the buyer, Everwin Investments. The closing cap rate was 6.5% and the trade was just over $367/SF.
In the OC office market, PM Realty Group Western Division EVP Jim Proehl tells us he expects to see significant increases in rental rates this year, probably 8% to 10%. Office rents are still well below the last peak in 2007 and below the level required to build new office properties, so development is still unlikely this year. But Jim says space in the best buildings is quickly disappearing and competition will result in fewer concessions and quickly rising rates. (Jim's snapped at NAIOP's Y Games last year.)
In retail, Coreland Cos senior associate Ben Terry (snapped at his annual fishing trip to Panguitch Lake in Utah) tells us grocery-anchored neighborhood shopping centers will continue to lead the sector, as they have for the past five years. Though they will see the strongest occupancy growth in Orange County, there will also be significant changes in the market, he explains. Ben notes the effects of the Albertsons-Safeway merger are yet to be felt. Pacific Northwest retailer Haggen Food & Pharmacy will acquire 11 of these sites in OC, and Ben says it will be interesting to see who else steps into the market.
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