With vacancy rates staying high for Orange County office space, landlords continue to be aggressive, offering substantial concessions and reduced lease rates to fill vacancies.
In the second quarter, vacancy rates for low-rise office space moved up slightly to 15.8% from 15.6% in the first quarter and 13.8% a year earlier.
However, OC’s overall office vacancy fell to 18.2% in the second quarter from 18.4%, and there was absorption for the first time since 2008.
Although challenges remain, tenants continue to benefit from the current office market conditions.
Low-rise office building lease rates declined with an average asking lease rate of $1.94 compared to $1.99 in the first quarter and $2.17 a year ago.
Lower lease rates are a contributing factor to more leases getting signed. Overall, tenants continue to reduce and control occupancy costs by disposing of excess office space by subleasing, negotiating a lease termination and relocating to more cost-effective space, or renegotiating their existing leases.
In addition to lower lease rates, landlords are offering more tenant improvement dollars, free rent and, in some cases, landlords are assuming a tenant’s existing lease obligations. These kinds of concessions present a tremendous opportunity for tenants to take full advantage of current market conditions.
Job growth is the key to growth in the office market. OC’s second-quarter unemployment rate was 9.2%, down from 9.8% in the first quarter. The county continues to post the lowest unemployment rate in Southern California and is far below California’s state rate of 12.4%.
Janzen is a senior associate in the Newport Beach office of CB Richard Ellis Group Inc.
