The Greater Airport Area emerged as the leader in office construction activity in 2001, proving the continued strength of that segment in the submarket. While the Orange County office market moves into the maturation phase of the real estate cycle, and construction activity has begun to taper, development continues in the Airport Area on nearly 1.3 million square feet of new space, including one new high-rise project that broke ground in the second quarter. Phase II of the Opus Center Irvine, a 14-story, Class A project, was 42% pre-leased when construction began. Meanwhile, some 60% of the new office product completed in the second quarter was in the Greater Airport Area.
Due to the continued influx of new space delivered during the second quarter, the vacancy rate for the Greater Airport Area rose to 12.4%, up from 10% in the first quarter. However, nearly half of the office development delivered in the Airport Area in the quarter was preleased, proving the continued demand for prime space within the unofficial downtown of Orange County.
Net absorption improved in the second quarter but was still a negative 153,414 square feet due to multiple software company closeouts and another residual move of Verizon Wireless from 65,000 square of space in the Airport Area to the company’s new campus project in South Orange County.
While some markets have experienced a reduction in asking rents, due to the oversupply of new construction, the average asking lease rate in the Greater Airport Area continued climbing in the second quarter, to $2.53, maintaining an 11% premium over the average asking rent of the county as a whole.
During the second quarter, the Airport Area industrial market continued to relax from the robust activity seen last year, yet the vacancy rate for industrial space remained well under 5%. The uncertainty of the economy has slowed the decision-making processes, and as a result, gross industrial activity ended the second quarter at 687,591 square feet leased and sold. While the vacancy rate for M & W; space edged up slightly to 3.2%, from 2.9% the previous quarter, R & D; vacancy tightened in the second quarter to 2.3%, down from 2.5%.
In contrast to the office market, which had the most construction activity in the Airport Area, industrial construction activity during the second quarter was limited in the Airport Area to Santa Ana. Seven manufacturing and warehouse buildings and two research and development buildings were under construction, totaling approximately 181,000 square feet. Another 784,866 square feet of industrial development remain in the planning pipeline for the Airport Area, 62% of that slated for Santa Ana, as well.
Analysis provided by CB Richard Ellis’ Global Research and Consulting.
