The low-rise office market (one to three stories) continues to be the tightest sector of office product in Orange County. This historical trend has resulted in stronger construction activity and lower vacancy rates than in other office sectors. More than 4.1 million square feet of low-rise construction were completed in the past five quarters, and net absorption remains strong. In the first quarter, another 640,000 square feet of low-rise office space completed construction in the South Orange County and Airport Areas. Net absorption remained positive in those markets as vacancy rates ticked up slightly due to the recent delivery of new space to the market. This new space is expected to lease much more quickly than older product that lacks many of the advantages of the newer projects.
The high demand for low-rise space is due to several factors. Low-rise buildings cost less to build and normally offer free surface parking. The convenience of nearby amenities also plays a role, but efficiency of use and lower rents are the driving factors.
Location,as always,plays a very important role, and sites near a major transportation artery are proving to be the most desirable. As office rents have increased in the Airport and Spectrum areas, newly completed low-rise projects along the Santa Ana (I-5) Freeway in Irvine, the Foothill (241) toll road in Foothill Ranch and the San Joaquin (73) Hills toll road in Aliso Viejo have become very popular. All of these areas provide quality low-rise campus environments that are rich in the amenities growing companies like to have to attract employees. Another important factor is proximity to amenities such as restaurants and fast-food operations, sports clubs, hotels, day-care centers, service retail and gas stations.
Low-rises also offer flexibility. Where high-rise buildings have floor plates of 18,000 square feet to 22,000 square feet, the newer low-rise buildings typically have plates ranging from 23,000 square feet to 33,000 square feet. With the larger floor plates, the load factors tend to be much less, sometimes as much as 25% to 50% less for tenants who occupy 15,000 square feet or more.
Finally, there’s cost. In the first quarter, the average asking monthly lease rate for low-rise office space was $2.11 (full-service gross), 20% lower than the average asking rent for high-rise space. On top of lease-rate savings, the absence of parking charges at most low-rise complexes eliminates a higher cost associated with high-rises.
Nourse is a senior vice president in CB Richard Ellis’ Newport Beach office. Supporting material was provided by CB Richard Ellis’ Global Research and Consulting.
