By JOHN WEINER
Vacancy for directly leased high-rise office space ended the fourth quarter at 7.2%. The direct vacancy rate for the John Wayne Airport area was slightly higher at 8.1%, up 40 basis points from the third quarter.
Owners remain bullish and continue to increase asking rates, push for longer terms and give fewer concessions.
Average monthly lease rates in the 70 high-rise office buildings in the airport area continued to grow in the fourth quarter, rising 6 cents from the third quarter to $2.98 per square foot.
Overall, average high-rise lease rates in the airport area finally exceed the high water mark of $2.95, set back in 2001.
Among the submarkets, the airport area holds the highest lease rates in Orange County, with rates still on the rise.
Average asking lease rates for buildings under construction range from $3.50 to $4.05 full service gross, primarily due to rising construction costs.
Preleasing of space under construction has been slow. But owners anticipate activity to increase as the buildings get closer to completion.
Traditionally, OC has not been a market where much preleasing occurs because the majority of tenants want to see what the space looks like. If the owners of new buildings remain patient, they will have a better opportunity to achieve the rents they are asking.
Recent shifts in the mortgage sector have been a topic of discussion relating to the possible negative impact this “giveback” space has on the market.
Most of the sublease space has been absorbed and won’t negatively impact the high-rise market on a long-term basis, nor drive down rents. In the airport area alone, more than 250,000 square feet of mortgage sublease space has been absorbed, proving this issue does not appear to be a big concern.
2007 should be strong for the high-rise office market in the airport area. The first half of the year most likely will see a low level of activity, yet vacancy rates are projected to remain low.
Activity in the second half should increase due to some large blocks of space coming available in existing buildings, along with the completion of towers.
This should create opportunities for tenants that have been struggling with expansion due to the current lack of quality space in the market.
Weiner is a senior vice president in the Newport Beach office of CB Richard Ellis.
Single- and multi-tenant buildings and parks of 30,000 square feet or larger, excluding government and medical buildings. Historical figures have been adjusted to reflect changes to the base. Historical figures may not agree with previously reported ones. Absorbed square feet does not include preleased space. Lease rates are full service gross, per square foot per month, excluding free rent, tenant improvements and other concessions, if any, and weighted by vacant square feet.
