The high-rise office market is defined by high profile, high-quality projects that tower seven stories or greater in height. The Orange County market includes more than 24 million square feet of high-rise office space, 64% of which is concentrated in the Greater Airport Area, the “unofficial downtown” of Orange County. Another 26% of the high-rise market is in adjacent Central Orange County.
The high-rise sector of the office market continued its recovery from the beginning of the year with positive absorption and a lower vacancy rate in the third quarter. Although sublease vacancy has increased throughout the entire Orange County office market, the amount of vacant sublease space in high-rise buildings dropped 5% in the third quarter. The wide majority (81%) of vacant sublease space is in the Greater Airport Area.
After reaching a low of more than 500,000 square feet of negative absorption in the first quarter of this year, the high-rise market has improved with two consecutive quarters of positive absorption. A net 66,095 square feet were absorbed in the third quarter, led by the Central Orange County market, where more than 115,000 square feet were absorbed in high-rise projects. The positive quarterly absorption dropped the vacancy rate to 12.2%, from 12.5% in the second quarter.
After topping out at an average of $2.68 per square foot per month in the second quarter, asking lease rates have begun to relax in the high-rise market. The average asking lease rate for high-rise properties dropped 7 cents (2.6%) in the third quarter to $2.61. Still, the average asking rent for high-rise space remained 10% higher than the average reported in the third quarter of last year.
Construction continued on two buildings totaling nearly 480,000 square feet of space: Phase II of Koll’s 1901 Main project, which is expected to complete development in the final quarter of this year; and Phase II at the Opus Center Irvine project, which is scheduled for completion in the third quarter of 2002.
Analysis provided by CB Richard Ellis’ Global Research and Consulting.
