By RICKEY WARNER
The Orange County office market took a slide in the fourth quarter.
The overall vacancy level for high-rise direct space ended the fourth quarter at 17.4%, which is up about 5% from the third quarter. The direct vacancy rate for high-rise space in the greater airport area was also higher at 18.2%.
This is not much of a surprise based on the delivery of new buildings, coupled with the downturn in the mortgage and homebuilding sectors.
The average lease rate in the high-rise office space is $3.17 per square foot. The greater airport area stayed flat in the fourth quarter at $3.40 per square foot, almost 40 cents per square foot higher than the year earlier. Among the submarkets, the greater airport area holds the highest lease rates in OC.
The downturn in the mortgage and housing sectors has been the key factor relating to 877,582 square feet of negative absorption in 2007 for the high-rise office market. Central Orange County accounted for the highest amount at more than 537,425 square feet with the greater airport area coming in second at 303,555 square feet of negative absorption total for the year.
According to CB Richard Ellis’ Torto Wheaton Research, office employment is the primary determinant of demand and is defined as certain categories within the financial and service employment sectors in which workers typically occupy office space. During the past five years, office employment has grown by 2.5%. However, during the past 12 months, office employment has declined by 0.4%.
Although the shrinking mortgage-related industry has directly affected the OC office market, the basic fundamentals are still strong. The region possesses a wide range of other business services, not related to the housing market. This diverse economy continues to hold down unemployment rates, which remain below the state and national averages.
Office rents are low on a relative basis compared to other major markets. While 2008 will be an adjustment period for OC’s office market, it is not expected to witness the same dramatic changes experienced in 2007.
Warner is a senior vice president in the Anaheim office of CB Richard Ellis.
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