Orange County’s availability rate inched up to 11.5% in the first quarter, versus 11.3% in the fourth quarter.
The slight rise follows a steady drop from the second quarter of 2002 through the end of 2005. A year ago the availability rate was 13.3%.
Like vacancy rates, availability rates include both direct and sublease space that is currently vacant. Unlike vacancy rates, availability rates also include space that will become available within the next 12 months.
Rental rates continued to rise in the first quarter. At $26.53 per square foot per year, overall rent increased by 5.3% quarterly and by 15.9% from a year ago.
Class A rent was $29.75, up 2.2% from the fourth quarter and 14.5% higher than a year earlier.
Total leasing activity remained healthy at 2 million square feet, up 1.8% from the fourth quarter but down 33% from a year ago.
Class A leasing was at 930,245 square feet, one of the lowest recent quarterly volumes. Activity dropped by 11.4% from last quarter and by 58.6% from a year ago.
Demand Leads to Construction
Construction activity has picked up from 1.6 million square feet under way in mid-2005 to 3.5 million square feet. About 1.9 million square feet of space under construction is available.
The increase in building activity is good news in a market where large blocks of contiguous space are at a premium.
A number of construction projects are speculative. In a bullish move, The Irvine Company is building two office towers, at 20 and 40 Pacifica, on a speculative basis.
Each 14-story tower will include about 312,000 square feet. The Irvine Co. has opened a marketing center for these buildings, with occupancy expected to begin in September 2007.
Another speculative project broke ground during the first quarter as Houston-based developer Hines Interests LP starting construction on its first OC project. The 265,000-square-foot tower on Michelson Drive is expected to be ready for occupancy by May 2007.
Proposed projects total 4.8 million square feet. One of the largest is Maguire Properties Inc.’s Park Place project at 3161 Michelson.
This 20-story, 590,000-square-foot building already is 50% preleased, but may encounter challenges. Because of restrictions governing the height of buildings around the airport, the Federal Aviation Administration has yet to issue a permit to allow construction to begin.
Maguire executives are hopeful that the permit will be issued, and continue to anticipate completion of the building by mid-2007.
Employment Growth
Continues
OC continues to grow its employment base. The county ranked No. 17 nationally in terms of job creation and economic performance, according to a study by the Milken Institute in Santa Monica.
The county’s unemployment rate in February was 3.6%, down from 4.1% a year earlier and one of the lowest rates for a major metropolitan area.
As job growth continues and a lack of housing persists, commuting patterns also are likely to change. The Orange County Transportation Authority predicts that the number of residents commuting from Los Angeles to OC will soon exceed the number of residents commuting from OC to L.A.
Frenetic Investment Activity
Nineteen properties totaling 2.7 million square feet changed hands in the first quarter, according to Real Capital Analytics. The value of the deals was $420 million, or $268 per square foot.
The Irvine Co. bought Newport Gateway for about $215 million, or $376 per square foot. The Irvine Co. also bought Irvine Center Towers for about $325 million, or $360 per square foot.
Looking Ahead
OC remains a landlord’s market, as evidenced by the ongoing shortage of large blocks of available space and rents that continue to rise.
Incoming supply will ease the pressure on tenants, but the market will likely remain among the tightest in the nation.
Analysis by Studley Inc.
