Most landlord representation companies have been reporting that vacant space in Orange County is at an all-time low and that the amount of such space is decreasing.
This interpretation of the market helps justify high rental rates. While there is no question that the amount of available space has declined during the past year, the reality is that tenants still have many options.
The combination of new construction and mortgage industry retrenchment has resulted in an overall availability rate of 11.6%,almost twice that reported by the landlord representation companies.
(Like vacancy rates, availability rates include both direct and sublease space that is vacant. However, unlike vacancy rates, availability rates also include space that will become available during the next 12 months.)
During the second quarter, the overall availability rate increased by a minimal 0.1 percentage points from the first quarter. The rate decreased by 1.3 percentage points from a year earlier.
The class A availability rate, 12.6%, posted a quarterly increase of 1 percentage point. In contrast, the availability rate for other classes of office space was down 0.8 percentage points to 10.5% from the past quarter.
Overall rent stood at $26.49 per square foot per year, a decrease of 0.2% from the previous quarter’s rate. On a yearly comparison, overall rent increased by 8.4%.
Overall leasing activity totaled 2.1 million square feet, up 4.8% from last quarter.
Vigorous Construction Activity
OC developers began work on more than $850 million worth of non-residential projects during the first four months of 2006, according to the Construction Industry Research Board in Burbank. Given the current low availability rates, this spate of activity should come as no surprise.
Projects comprising more than 40,000 square feet delivered about 368,000 square feet of office space during the second quarter. Of that amount, more than 220,000 square feet is available.
Another 3.6 million square feet is under construction, with 1.9 million square feet of the space available. There’s an additional 4.2 million square feet of office development in the proposal phase.
Construction is under way on three projects from The Irvine Company: 20 and 40 Pacifica in the Irvine Spectrum area and 18100 Von Karman at Irvine Center Towers.
The Irvine Company has also announced plans for a sixth office building at the Jamboree Center in Irvine. The Hines-Crescent project at 2211 Michelson is moving forward, with 265,000 square feet slated to be completed in May 2007.
Opus West Corp. is scheduled to begin construction next month on Opus Center Irvine. This 13-story, 313,000-square-foot tower will be on Main Street in Irvine.
Sublease Space Returns
A large amount of sublease space recently has been put on the market. The long-anticipated slowdown in the mortgage industry has become a reality.
Since March, mortgage companies have cut 1,140 jobs. Acoustic Home Loans closed its doors in April and returned about 60,000 square feet of space to the market. ACC Capital Holdings, the parent of Ameriquest, has given back about 525,000 square feet.
In addition, ConAgra Foods is vacating and subleasing about 260,000 square feet in Irvine and Shaw Environmental is offering 48,000 square feet for sublease, also in Irvine.
This sublease giveback could be considered the equivalent of two or three large office buildings,good news for tenants seeking more space.
During the second quarter, OC’s sublease space totaled 2.7 million square feet, up 42.1% from the prior quarter. The sublease availability rate stood at 2.9%, up by 0.8 percentage points from last quarter and 1.2 percentage points from a year earlier.
Notable Sales
There were 38 office properties totaling 2 million square feet that changed hands in OC during the second quarter, according to Real Capital Analytics. The aggregate price was $493 million, or $260 per square foot.
Analysis by Studley Inc.
