REAL ESTATE WATCH: High-rise office space

High-Rise Office Space Still Hurting, But Seeing Optimism from Tenants

Sunday, August 1, 2010

The trend of depressed rates and shrinking tenants continues to affect Orange County’s high-rise office space.

The average asking lease rate for high-rise office space decreased $2.37 to $2.23 in the second quarter.

OC’s high-rise office market accounts for more than a quarter of the office space in the region, totaling nearly 27 million square feet.

The greater airport area makes up the majority of the sector, contributing more than 65% of the county’s total high-rise space.

The high-rise sector experienced a slight increase in overall vacancy in the second quarter, up less than 1% from the previous quarter.

South County and North County witnessed an increase in occupancy.

The vacancy rate for high-rise space in South County declined to 23.8% from 25.6%, while North County dipped to 9.4% from 9.5%.

Due to the small size of its high-rise market, West County experienced the greatest increase in vacancy, rising to 16.1% this quarter from 14.9%.

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South Coast Metro office: high-rise space saw a slight increase in vacancy

Tenants

Renewed optimism is evident, however, in tenant behavior.

Although still in the red, absorption did improve in the second quarter with negative 20,083 square feet.

As absorption remains relatively stagnant, asking lease rates throughout the market have continued to decline as landlords compete to fill vacancy. On average, asking rents for the county are down 6% from the first quarter to $2.23 per square foot in the second quarter.

This latest decline is relatively minimal in comparison to the drop from a year earlier when the overall asking lease rate for high-rise space stood at $2.58 per square foot, denoting a 14% decline.

With no new office buildings under construction in the county, companies will look to expand or relocate to existing buildings at lower rents to facilitate growth in the coming years.

Data and analysis by CB Richard Ellis Group Inc.

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