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Thursday, Mar 28, 2024
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REAL ESTATE WATCH: High-rise Office Market

Although the recession has technically ended by government standards, its economic effects still are evident in local markets, particularly the Orange County office market. Business plans to grow company operations have been put on hold, leading to a decline of demand for office space. While the amount of vacant high-rise office space recorded a decline in the third quarter, it continues to hold the highest vacancy level of the office property types.

The OC office market includes 125 high-rise buildings totaling nearly 27 million square feet. The overall vacancy rate stands at 21%, or about 5.7 million square feet. This represents a 1% decline from the second quarter, but it remains slightly above the third quarter 2008 rate of 20.4%. The third quarter direct vacancy rate, which excludes vacant sublease space, is 19.1%, also denoting a 1% decrease from the previous quarter.

Airport Area

With 74 high-rise buildings totaling more than 17.5 million square feet, the greater airport area is the largest submarket in the county. Rising slightly from the second quarter, this submarket holds an overall vacancy rate of 21.6%. Of the empty 3.8 million square feet, 88% is available directly by the landlord, thus producing a direct vacancy rate of 19.1%.

The high-rise office market saw a relatively flat 35,245 square feet of absorption in the third quarter, offsetting the 2009 year-to-date total of 522,769 square feet of negative absorption. Central County was the greatest contributor to positive absorption in the third quarter with a total of 76,490 square feet. The greatest amount of negative absorption was seen in the South County submarket, at 25,168 square feet.

The reduction of demand countywide has caused owners to continue to lower their asking rates and give greater concessions. The average lease rate for all of OC is $2.25 per square foot, which is down an additional eight cents from the second quarter and from 35 cents a year earlier.

Among the submarkets, the most significant decline was in West County, which dropped 28 cents in the third quarter to an average asking lease rate of $2.26 per square foot.

As with the other property types in OC, the high-rise market appears in for the long haul to recovery. Although OC holds a strong fundamental market base, continued flat or negative absorption is projected for the balance of the year and at this point there are no determined industries on the horizon to occupy large blocks of space.

Data and analysis provided by CB Rich-ard Ellis Group Inc.

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