The Orange County market continued to tighten during the fourth quarter. The overall availability rate decreased for the 11th consecutive quarter and fell to a record low of 11.3%,a quarter-on-quarter decline of 0.6 percentage points and a drop of 3.8 percentage points from a year ago.
The overall availability rate has fallen by 10.8 percentage points since its peak of 22.5% in early 2002. The last time the market saw overall availability rates of less than 15% was in 2000.
The class A availability rate was 10.5%, a 0.1 percentage point decline from last quarter and a 4.2 percentage point drop from a year ago.
In contrast to vacancy rates, availability rates include both direct and sublease space that is currently vacant and space that will become available within the next nine months.
Overall rents continued the upward trend that began seven quarters ago. It increased for the fourth quarter by 0.3% and for the year by 8.1%, to a record $25.19 per square foot. The previous peak, $24.73, was in 2001.
Fourth-quarter leasing activity reached 2 million square feet, contributing to the decline in availability rates and the rise in rents.
Overall leasing volume for the year was 10 million square feet,slightly higher than the 9.9 million square feet posted in 2004 and just shy of the 2000 peak of 10.4 million square feet.
Space Still Available
During the fourth quarter, 1.5 million square feet of sublease space was available in OC. The overall sublease availability rate stood at 1.7%,an increase of 0.5% from the third quarter.
Thirteen class A sublease spaces of greater than 20,000 square feet each were available. Six of these spaces were put on the market during the fourth quarter.
Additionally, the market is beginning to show signs of a slowdown in the mortgage industry. ACC Capital Holdings, the parent of Ameriquest Mortgage Co., recently announced a layoff of 10% of its work force.
If this becomes an industry trend, a surge in sublease space is sure to follow during the coming months.
A New Landlord in Town
General Electric Co.’s real estate unit, GE Real Estate, agreed to buy Arden Realty for $3.2 billion in cash and $1.6 billion of assumed debt. The transaction should be finalized early this year.
Arden’s portfolio is made up of 18.5 million square feet, mostly in Orange and Los Angeles counties. Of the 52 OC properties, 43 are office or flex space.
The office component comprises more than 2 million square feet. It includes class A properties such as Anaheim City Centre in Anaheim and Crown Cabot Financial Center in Laguna, as well as class B buildings such as the Savi Tech Center in Yorba Linda and City Centre in Fountain Valley.
Building Sales: As Hot As Ever
Investors continue to see value in OC real estate, as evidenced by growth in the investment sales market in 2005.
A total of 78 buildings with 10.2 million square feet changed hands during the year for a total price of $2.3 billion, or $230 per square foot, according to Real Capital Analytics. In 2004, 61 properties totaling 8.8 million square feet sold for a total of $1.7 billion, or $195 per square foot.
During the fourth quarter, 18 buildings comprising 1.5 million square feet sold for a total of $353 million, or $214 per square foot. Notably, Seligman & Associates purchased Anaheim Corporate Plaza from RREEF Funds LLC for $68.2 million, or $226 per square foot. The purchase involved a portfolio of five Class A and Class B buildings totaling about 300,000 square feet, all of which were constructed in the early 1980s.
In addition, Triple Net Properties LLC bought the Saturn Business Center at 2992 E. Imperial Highway in Brea from GE Commercial Finance for $22 million, or $182 per square foot.
Several other major building sales are pending. Core Real Estate is under contract to acquire 4000 MacArthur from KBS Realty Advisors. KBS purchased the building in March for $110 million, or $295 per square foot.
Data and analysis by Studley Inc.
