For the second consecutive quarter, absorption boosted activity and confidence in South County.
Although market challenges and declining rates persist, demand and activity continue to improve and hopefully signify the beginning of an upward trajectory at long last.
Tenants and buyers alike are continuing to take advantage of attractive lease packages and distressed assets, as evidenced by the region’s 108,096 square feet of absorption in the second quarter.
While the retail and research and development markets experienced negative absorption of 36,578 square feet and 9,398 square feet respectively, they were outweighed by the office and manufacturing and warehouse sectors, which experienced 88,848 square feet and 65,224 square feet of positive absorption.
Despite increases in absorption and demand, every sector (office, retail and industrial) continued to experience falling asking rents, mainly due to large amounts of vacant space.
Average office and industrial asking rates have fallen furthest from the second quarter of 2009, from $2.37 to $2.07 (-12.7%) and 72 cents to 61 cents (-15.3%), respectively.
Retail and research and development also continued their decline in the second quarter to average asking rents of $2.94 and 98 cents, which was a respective 2% and 5% decrease from a year earlier. The slower rate of decline is a possible signal that the freefall of 2009 may be skidding to a stop.
Vacancy rates similarly increased for retail (9.4%) and research and development (5.8%) space, but actually decreased in the office (17.9%) and manufacturing and warehouse (5.1%) sectors.
However, more than 4 million square feet of office space remains vacant with another 1 million square feet of empty manufacturing and warehouse space.
That said, the overall decrease in vacancy is a direct result of companies taking advantage of historically low rates and landlords becoming more aggressive after prolonged downtime.
With high vacancy rates continuing, rates likely will continue to fall, but appear to be steadying.
Like the macrocosm of the economy, many of the larger issues remain unsolved. Job growth is still non-existent, lending remains difficult and larger blocks of space continue to sit vacant with scarce demand. The remaining supply—about 6.5 million square feet in all of South County—and spotty demand suggests a long and bumpy road to recovery.
The good news is that many corporations that weathered the storm of 2009 are now re-adjusted and ready to grow again. And for those with the ability, opportunities are available.
With these positive signs posting in the first two quarters of 2010, market watchers are hopeful that the bottom is nearer. The third and fourth quarters will be telling, and after we emerge from a typically slow summer season, we should see another quarter of positive numbers.
Morrow is an associate in the Newport Beach office of CB Richard Ellis Group Inc.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
