By DAVID ELLIS
The low-rise office market in Orange County represents a diverse mix of properties from new high-quality office parks to older, garden-style courtyard buildings.
The profile of typical low-rise office tenants includes accountants, attorneys, architects, engineering firms, real estate professionals and insurance companies and sales operations.
However, major corporations have found that low-rise office campus environments can offer their employees numerous advantages over high-rise settings, even for headquarters. Some benefits realized are convenient free parking, a less formal working environment and a lower occupancy cost.
Lease rates for low-rise office space, although down 0.4% from the third quarter, have increased 6.9% from the end of 2006. Vacancy rates for low-rise office buildings have increased 9.5% from the third quarter and have risen 35.7% from 2006.
Low-rise space, in addition to mid- and high-rise space, also has been affected by the volatile mortgage lending and homebuilding industries. In addition, the completion of low-rise construction also contributed to the increased vacancy.
The first three quarters of 2007 were characterized by landlords attempting to get their arms around what was really happening in the marketplace. Some OC landlords remained bullish, suggesting that rental rates would remain steady or continue their upward ascension.
Other landlords suggested that a significant softening in the marketplace was taking hold. At the conclusion of the fourth quarter, landlords began to take the appropriate steps to remain competitive in the marketplace through creative deal structuring.
Lease assumptions, aggressive rental rates, initial free rent and tenant improvement packages are increasingly becoming more common. Many have described the current climate of the marketplace as providing a “tremendous opportunity” to be a tenant.
Although some are of the opinion that “the sky is falling,” the reality is that the basic fundamentals of the office market remain strong. This diverse economy continues to produce positive job growth and hold down unemployment rates which remain below the state and national averages. The extent of this “transitionary” phase remains to be seen.
Ellis is a senior associate in the Newport Beach office of CB Richard Ellis Group Inc.
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