Asking Rents Stable, Vacancies Decline, Net Absorption Up
Orange County office market indicators turned positive in the second quarter, with an increase in business services employment, declining vacancy rates, positive absorption and stabilizing asking lease rates.
While construction activity began winding down in the beginning of this year, the vacancy rate began stabilizing in the office market.
In the second quarter, the vacancy rate in the county dropped for the first time in six quarters to 15.5%, showing signs that market activity once again is catching up with the supply in the market.
The vacancy rate for sublease space dropped significantly (16%) in the second quarter as well, ending the first half with less than 1.8 million square feet of sublease space vacant.
Net absorption in the office market turned positive again in the second quarter with tenants taking advantage of lower asking rents and resuming limited plans of expansion.
The greater John Wayne Airport area saw the greatest amount of positive absorption (nearly 314,000 square feet), particularly throughout flex product in Irvine, and the high-rise product in the airport office area submarket.
As a result, the entire low-rise market in Orange County, which includes flex space, absorbed 419,431 square feet in the second quarter. The high rise market saw 94,742 square feet of positive absorption.
Motivated landlords began lowering asking rents early last year when new supply was quickly out-pacing demand in the market.
As current construction activity has wound down to half of what it was in the fist half of last year, the average asking lease rate for office space has stabilized, ending the second quarter of 2002 at $2.10, the same average rent as the previous quarter.
Rental increases were seen in both North Orange County ($0.05) and South Orange County ($0.02).
Only 1.4 million square feet remained under construction in the OC office market as the second quarter came to a close, less than half of the development activity seen in the same quarter of last year.
Two low-rise buildings completed construction during the second quarter, adding 200,253 square feet to the office base. One three-building project broke ground during the second quarter in Central OC. The Arena Corporate Offices were 63% pre-leased at the start of construction in June. The Trammel Crow Co. project is anticipated for completion in the second quarter of 2003.
