Real Estate

OC Office Deals at 45% Off, Owner-Users Dominate Market

Orange County sees owner-users buying office spaces at discounts, contrasting with Boston's foreign investment surge in a pandemic-shifted market.

By Doug Elli

5/15, 11:49 EDT

Key Takeaway

  • MicroVention Terumo's purchase of an Aliso Viejo office building for $44 million, 45% below asking price, highlights the trend of owner-users capitalizing on discounted OC office properties.
  • Office properties in Orange County are trading significantly below pre-pandemic prices, with deals closing at $181 and $149 per square foot compared to the previous $300-$350 range.
  • The shift towards owner-users, now 33% of the buyer pool up from 10%, indicates a changing dynamic in the OC office market amidst ongoing discounts.

Orange County's Office Market Shift

In a striking turn of events, Orange County's office real estate market is witnessing a significant shift towards owner-users, entities that purchase buildings for their own use, capitalizing on distressed office deals. This trend is underscored by the fact that four out of the top five office sales in the region this year were made by owner-users, with deals closing at prices notably below their asking rates. The most prominent transaction involved MicroVention Terumo acquiring an office building in Aliso Viejo for $44 million, a stark 45 percent less than its listed price, highlighting the pandemic's profound impact on office space demand and valuations.

A Comparative Look at Boston's Office Market Dynamics

While Orange County sees a surge in owner-user transactions, Boston's office market narrates a different story, with foreign investment firms like Azora Exan actively acquiring properties amidst a challenging market environment. Azora's recent purchase of an office building in Boston's Back Bay for $39 million, at a rate of approximately $1,457 per square foot, starkly contrasts with the distressed sale prices in Orange County. This divergence in market dynamics between the two regions illustrates the varied impact of the pandemic on commercial real estate across the United States, with some markets becoming hotbeds for foreign investment while others see local businesses seizing opportunities to own their premises at reduced rates.

The Broader Implications of Market Dislocations

The contrasting scenarios in Orange County and Boston reflect broader trends in the U.S. office market, where dislocations caused by the pandemic have led to divergent strategies by investors and end-users. In Orange County, the shift towards owner-user purchases is a direct response to the decreased demand for office space, allowing local businesses to acquire properties at significantly reduced prices. Conversely, in Boston, foreign investors like Azora Exan are capitalizing on the market's dislocation to expand their portfolios, betting on a recovery and future growth. These trends not only highlight the adaptability of the real estate market but also underscore the opportunities arising from economic disruptions, whether for local businesses in markets like Orange County or international investors in cities like Boston.

Navigating Through Uncertainty

The current dynamics of the office real estate market, exemplified by the activities in Orange County and Boston, offer a glimpse into the evolving landscape of commercial real estate in the post-pandemic era. In Orange County, the rise in owner-user transactions signals a potential shift in how businesses view property ownership, possibly favoring long-term investments in physical assets over the uncertainties of leasing. Meanwhile, the confidence of foreign investors in markets like Boston suggests a belief in the resilience and recovery potential of urban office spaces. These developments indicate a broader trend of market participants navigating through uncertainty by leveraging opportunities created by the pandemic's disruptive impact.

Street Views

  • Anthony DeLorenzo, CBRE Capital Markets (Neutral on the Orange County office sector):

    "In a ‘normal-ish’ market, about 10 percent of the buyer pool for the office sector comprises owner-users. Last year, we saw that about 33 percent of trades went to owner-users."