The first quarter saw the Orange County office market continue to recover from the recession, with net absorption that topped all of the prior year and added to a recent positive streak.
Net positive absorption totaled 690,329 square feet, the largest of four consecutive quarterly gains. The office market has accounted for 1.7 million square feet of positive net absorption since the second quarter of last year.
Absorption for the first quarter was dominated by the Greater Airport Area submarket, which saw more than 78% of the total.
Tenants taking advantage of low rents to trade up to higher-quality properties appear to have driven much of the activity.
That trend still has legs because lease rates continued to fall during the first quarter, marking the 13th consecutive decline in the office market here.
Rates Fall
The overall average asking lease rate for office space in the county dropped two cents from the prior quarter to $1.96 per square foot. That’s down 18 cents from a year earlier and on par with rates in 2003.
But the pace of declines on lease rates—just 1% on a quarterly basis—suggests that the market is becoming more stable after beginning a steady fall three years ago.
CBRE Econometric Advisors forecast the rate of decline to slow even more in the second half of the year.
The total vacancy rate for the county’s office properties decreased from 17.2% to 16.4% in the first quarter. That matches the decline in the vacancy rate for all of 2010 and takes it to its lowest level since the first quarter of 2009.
Class A Bargains
The largest decline in vacancy rates was recorded in class A properties in the Airport Area submarket, further illustrating the current trend of tenants taking advantage of low lease rates on high-quality space.
Class A midrise properties saw the steepest drop in vacancy rates but still finished the first quarter with the highest mark at 18.8%.
Class C buildings had the lowest vacancy rate of all the classes at 13.7%.
Class B buildings had a 14.4% vacancy rate.
Lease rates fell across the board, ending the first quarter with class A properties asking an average of $2.12 per square foot.
Class B properties averaged $1.80, with class C at $1.60.
Office construction in Orange County continues to be minimal. No new construction on large projects has taken place in six quarters.
All local construction completed since 2008 have been built-to-suit projects.
Analysis provided by CB Richard Ellis Research.
