Video Recap of Bisnow's Orange County State of the Market Summit

Investors might now want them, but CBRE senior managing director Kurt Strasmann says there aren't a lot of high-quality, institutional-grade properties for sale in Orange County. "On the industrial side, no one wants to give it up," he observes. (In CRE, sharing is not caring.) "It's tough. That's why you see the values where they're at." Moreover, he isn't worried that Southern California is going to lose its industrial base, despite high taxes and stiff regs. For companies with a lot of employees, there are a lot of options nationwide—such as Texas, which is actively trying to poach biz from California. But there's always going to be an industrial market here, since about 20 million people live within a hour's drive, he says, and many more beyond that.

Hines managing director and partner Ray Lawler points out that staying competitive is a significant challenge for California businesses. It's a high-tax state with regs that make it very difficult to develop anything new. He also says that Orange County is a tale of two tenants, with 80% of the office tenants in the county taking 5,000 SF or less. "But those 80% have a lot of options," he explains. "It's hard to see rent growth for 2013 or even 2014 for those little guys." On the other hand, larger tenants—60k SF to 100k SF—have very few options.

USAA Real Estate Co managing director Steve Ames says that CRE investors come to Southern California because of a chain of events: the quality lifestyle attracts quality workers, who attract quality companies. That in turn brings in quality equity investors. "Orange County is recognized as a liquid market," he says. "There's a lot of investment dollars trying to find their way into Orange County, and there's a relative lack of product to buy."

"Creative office space costs us about $15 to $20 per SF to create," says Lincoln Property Co SVP Kevin Hayes. For a building with a 7.5% cap rate, that adds $40 per SF to the value of the building, but he stresses that the addition is only theoretical. "What we've seen is some of these creative tenants move out before the end of the lease," he explains. Another challenge for office landlords has been an erosion of rental rates for renewals—over the last year, he's seen rents slide a little for renewals.

Panattoni Development partner Steve Batcheller notes that a driver behind the health of the apartment investment market has been agency financing, both for construction and acquisition. The industrial market, on the other hand, is doing well because of activity in the region's ports, and the fact that employment is picking up. "Industrial doesn't have any TIs, so it's cheap to turn over," Steve adds, especially compared to office. "All the institutions are underweighted for industrial, and so… we're going to see falling cap rates in industrial, and a huge demand for it coming in."