Economic Indicators Suggest Market Cool-off Not Coming Soon

ORANGE COUNTY, CA-Investors and developers looking for the county’s market for commercial-type property to cool off anytime soon should not be waiting around.

Figures recently released by the Real Estate Research Council of Southern California at California State Polytechnic University in Pomona indicate that construction costs and the level of non-residential permits authorized for the first half of the year have continued to rise year-to-year for several years now.

Measured in terms of estimated construction costs, the council’s second quarter 2000 Real Estate & Construction Report reveals that total building valuations for non-residential permits, consisting of office, retail, industrial and hotel/motel buildings, reached $2.15 billion. This is a slight increase from the almost $2.1 billion in valuations for the first half of 1999, but a steady incline from the $1.6 billion for the same period of 1998 and the $1.5 billion in 1997.

“It’s hard to tell what’s going on, on a quarterly basis,” says Michael Carney, executive director of the council. “You need to look on a year-to-year basis.”

Broken down by property type, office and hotel/motel properties have shown the strongest gains, with $203 million in office valuations for the first half of the year, and $119 million in hotel/motel valuations. Compared to the same period last year, office valuations went up 75%, while hotel/motel valuations increased 59%. Retail building valuations were up by 29%, but industrial evaluations were down 33%.

Construction costs were up 5% for low-rise, class C buildings from July 1999 to July 2000, with total cost at $2.1 million or $81.44 per sf. Likewise, construction costs for class B high-rise office buildings were up 4% year-to-year in July. Total cost was $22 million, or $102.67 per sf.