Real Estate Watch: Research and Development
Research and Development Work Grinds to Halt
Orange County’s research and development sector continued to reflect the economic challenges faced in the first quarter.
The high tech industry hasn’t rebounded to its pre-recession pace, while companies are seeing less funding from Wall Street.
Activity in the research and development sector again was slow as tenants take a cautious approach to expansion plans.
Overall net absorption fell to a negative 292,285 square feet in the first quarter, pushing the vacancy rate up to 7.5%, versus 6.7% the previous quarter.
South County, where many of the region’s high tech companies are based, suffered negative net absorption of about 94,000 square feet.
But most of the first quarter’s negative activity in OC was in North County and West County, where just one lease deal closed during the quarter, and nearly 320,000 square feet was vacated.
The John Wayne Airport area was the county’s sole market to post positive net absorption for research and development space in the quarter. It had net absorption of 117,423 square feet.
The lack of activity brought construction in the research and development sector to a near halt.
While several research and development buildings remain in the planning stages, no new projects broke ground during the first quarter.
Two buildings totaling 53,216 square feet completed construction during the first quarter. They are in phase two of the Irvine Spectrum 5 project.
One research and development building is under construction in the city of Orange. The 34,000-square-foot building is set for completion in June.
Landlords of research and development space are adjusting asking rents down to attract new and retain existing tenants.
In the first quarter, the average asking lease rate for research and development space fell two cents to 76 cents per square foot.
Sale prices in the sector also dropped in the first quarter to an average of $117.90 per square foot, down 6% from $125.63 the previous quarter.
An increase in activity is expected as rents continue to decline.
Analysis provided by CB Richard Ellis’ Global Research & Consulting.
