Kurt Strasmann, Managing Director of Brokerage Services at Voit Real Estate Services, is speaking on the Orange County Industrial Real Estate Market at the IREM (Institute of Real Estate Managers) Conference today.

Here is an overview of what he will be discussing:

1. Vacancy is at 6% currently and we expect vacancy to move up to around 6.75 to 7% by year’s end. Starting in 2011 we expect the vacancy to slowly start moving down again. To give you a perspective the low in vacancy was in the 3rd quarter of 2007 at 3%. Right now the average down time for a vacant building is approx. 12.2 months

2. Availability rate – includes direct vacancy and all sublease availability and is a good indicator of where vacancy is headed. Right now it is at 10.85%. We expect it to hold steady, maybe inch up to 11% and slowly come down by year’s end. Again the low was in 3rd quarter of 2006 at 4.35%

3. Net Absorption: 2009 was an extremely difficult year with approx. 5 million sqft of negative absorption. We see a negative absorption in 2010 by approx. another 1 million sqft. To give you a perspective from 2005- 08 we had an average of 1.25 million sqft. of positive absorption. The high was in 2004 with over 5.5 million.

4. User asking lease rates: Currently the average asking lease rate is $.59 NNN down from the high of $.80 NNN in Jan of 2008- 2 years ago. We see another 5 to 10% maximum downward pressure on rents through the end of the year. Keep in mind these are asking rents, thus effective lease rates are approx. 10-15% off these numbers.

5. User asking sale prices: Currently the average asking sales price is $101 per sqft down from $150 per sqft in Jan of 2008. About 33% decline. We expect to see another 10% decrease in sale prices unless an onslaught of distressed assets hit the market where we potentially another 20% reductions. Again these are asking prices. Sales have been few and far between and generally are far below the average asking price.

6. Investment Market: For stabilized in place market rents on quality assets we see cap rates at 7.5%. For Class B and C product we see cap rates in the 9-10% range. By comparison in 2006 and early 2007 cap rates got down to the 5.5 % range.

7. Future Activity: Activity has increased and it is becoming steady. Private companies and larger corporations are finally making decisions and get deals done vs. last year at this time when nothing was being done. We see this trend slowly increasing as people get used to conducting business in this environment. We are still at least a year away from having any pressure for price appreciation. –Simple too much supply.

8. Distressed Assets: On the industrial side, not much to look at this point. We do see this picking up in the second half of the year. Interesting to note when quality assets are priced aggressively there is no shortage of buyers. Multiple buyers emerge at the right price.

9. Best Opportunities:

a. Users looking to buy or lease product. We are near the bottom and 2010 should be near the low point. If a quality asset comes up that is priced to the market, there is great financing and with no new construction in place – very limited downside. Need to hold 5-7 years
b. Leasing – great time to move up in quality of product and lock in great lease rates for 5 years.
c. Investors- if you can buy at market rents- terrific long term opportunities. We just have not seen much available for sale. Watch out for the class B and C product because vacancy will be very tough.
d. Note Sales- we have seen a few opportunities here and hope note sales will emerge more on the industrial side. The problem is finding a lender that has written off the asset and has priced the note for a market sale.

10. Key indicators to watch:

a. Job Growth: 2009 was negative in OC of 49k 2010 is predicted to have 1,500 positive job growth 2011 should start to see better numbers.

b. Consumer confidence: slowly moving up from the lows of Jan 2009.
c. Retail Sales: low was in Nov 2008 and it has slowly moved up.
d. Port Traffic: LB/LA numbers are still off by 30% but they have increased since the lows of Jan 2009.

Forecast: 2010 will be better than 2009 for everyone. Slow and steady recovery – kind of an L shape recovery. All Four indicators are moving in the right direction, but at very slow pace.