By SCOTT KENNY and GARRETT ELLIS
The results were impressive for Orange County’s office market in the fourth quarter.
If office tenants didn’t listen to their commercial real estate agents about the rising market before, they’ll be listening now.
The overall vacancy rate for office space in OC in the fourth quarter fell to 6.2%, down 440 basis points during the past year.
Vacancy for class A high-rise office space was 6% in the quarter. This is a sector that saw average asking lease rates jump to $2.50 per square foot in the fourth quarter, versus $2.35 per square foot a year earlier.
The largest decline in overall office vacancy in the past quarter was posted in South County, where the rate fell to 2.9% from 22.3% a year ago.
Vacancy has declined due to the lack of supply of available office space and a robust OC economy where companies are looking to expand.
There was about 1 million square feet of positive absorption last year. More than 4 million square feet of space was taken off the market in 2005.
There is hope on the construction front.
While construction of office buildings, especially high-rise office towers, has been slow during the past couple of years, there now are many projects under way.
A total of 2.5 million square feet of office space is expected to be completed during the next 18 months to two years.
Most local brokers expect vacancy rates to go lower and rental rates to move higher before the buildings under development hit the market.
One of the big variables for the office market is the effect of rising interest rates on OC’s large crop of mortgage lenders.
No matter what you think about the potential fallout, the reality is that the bigger mortgage companies in OC have stopped expanding and some are giving back portions of space to the sublease market.
With tenants and landlords reversing driver seat roles during the past 18 months, it will be interesting to see what 2006 holds for both parties.
Kenny is a senior associate and Ellis is an associate in the Anaheim office of CB Richard Ellis Group Inc.
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