Ask nine Orange County residents what comes to mind when they hear the term “real estate” and the chances are good that they’ll say some term related to housing.
But real estate is more than the price of homes or mortgage rates or what is hot and what is not. In its entirety, Orange County real estate is a collection of all of the above, plus a lot of intangibles, mixed in with other economic news such as the consumer confidence index and the price of gasoline.
By the way, consumer confidence and gas prices are rising dramatically.
Another component of the real estate market that factors in the equation is on the professional side. No one resides in the addresses of these transactions and there are no living rooms or bedrooms, but the health of this segment is as important to residential real estate as any data not directly related to buying or selling a home.
This stepchild of sorts is commercial real estate: The buying, selling and leasing of office and industrial space where people go to work. When they go to their jobs at these commercial properties, they earn wages. Properly managed, those wages could then become a down payment on a home or used to maintain an existing mortgage and keep it in good standing — something very important these days.
A key real estate term in this market is the “absorption rate,” which is used, for example, by the National Association of Realtors to help determine whether buyers or sellers have more leverage. The absorption rate is the length of time required to sell — or, absorb — the existing inventory of homes. The higher the absorption rate, the greater the buyer’s advantage because it indicates a backlog. When the absorption rate is low, sellers have the edge because there fewer homes from which to choose.
Simply put, the absorption rate is the number of weeks it takes to sell the current inventory at the present rate of sales.
Although it is not a firm length of time, a six month absorption rate is usually an indicator of a healthy market.
You hear more about absorption rates in commercial real estate in part because this side of the market has its own separate language. But the fact is that the term applies to both commercial and residential real estate.
With the understanding that the commercial absorption rate has a legitimate seat at the table where we analyze overall economic health, there is good news to be heard, or in this case, read.
According to fresh news this week from Newport Beach-based Voit Real Estate Services, the two key segments of commercial real estate, industrial leasing and office space leasing, have improvement indicators. Voit’s First Quarter Market Report reveals that both industrial and office have a “positive net absorption,” a good development. For the industrial segment, it is the fourth straight quarter of good news and the third straight quarter of good news for the office space side.
But wait, there’s more. Both the vacancy rate and the availability rates for office and industrial showed a decline when compared to the same period last year. Granted, last year was nothing to write home about, but today, any news is great news.
Orange County’s positive commercial news is not blockbuster stuff. The problem is that all positive news may forever be compared to the high water marks achieved before the recession when anything and everything on the market was selling quickly at high prices.
Today, we’re heading back to a reality market. Explosive growth has been replaced by steady growth that, in the long run, is the healthiest type.
STEVE SMITH is a Costa Mesa resident and a freelance writer. Send story ideas to smi161@aol.com.
