Orange County’s office market continued to grow in the fourth quarter.
Driving this improvement was the local economy, which has added jobs during the past two years at an accelerating pace.
In the fourth quarter, the unemployment rate dropped to 2.9%,far below the national average and now the lowest in the nation. The rate fell from 3.3% in the third quarter and 3.6% a year ago, even as the labor force expanded.
About 20 major defense contractors and many smaller subcontractors continue to benefit from increased defense spending, and both Boeing and Raytheon have increased their local payrolls.
In addition, the technology sector is thriving, with semiconductor manufacturers increasing production and expanding into new global markets.
The fourth quarter witnessed the largest lease deal in Orange County history.
Irvine-based chipmaker Broadcom Corp. finalized a lease for 700,000 square feet. Broadcom will relocate its headquarters to University Research Park in the airport area submarket from the Irvine Spectrum.
The move will consolidate Broadcom’s headquarters with other local operations into one complex closer to the University of California, Irvine and John Wayne Airport.
Another major transaction is reported to be on the verge of closing. New Century Financial Corp., a subprime mortgage lender, has signed a letter of intent for 480,000 square feet that calls for construction of a 20-story office tower in the Park Place Business Park in Irvine.
Los Angeles-based Maguire Properties Inc. will develop the building, with New Century relocating from Irvine Center Towers and Irvine Technology Center. The Park Place Business Park is a 105-acre campus in the airport area, at the corner of Jamboree Road and Michelson Drive.
These major transactions underscore the health of the Orange County office market. Market tightening has made it increasingly difficult to find large contiguous blocks of space.
There still are plenty of 10,000- to 30,000-square-foot blocks available. However, very large tenants such as New Century or Broadcom have no alternative but to sign for space in a planned building or development. That, in turn, gives the developer the anchor tenant needed to begin construction.
More leases of the magnitude of New Century’s and Broadcom’s are likely to be generated by Orange County’s continuous job growth.
The New Century transaction also highlights that the anticipated mortgage company slowdown has not materialized. Even as mortgage rates rose last year, companies continued to expand into new space.
While New Century’s transaction will be the largest among mortgage lenders, others have taken space, too.
HomeLoanCenter leased 151,120 square feet in Irvine, Freemont Mortgage signed for 104,870 square feet in Brea, Ameriquest/Argent added 100,000 square feet in Irvine and Olympus Mortgage leased 90,000 square feet in Irvine, moving from 20,000 square feet in Orange.
Countywide leasing activity was particularly strong at 3.1 million square feet in the fourth quarter. That made up for a slower pace earlier in the year. The fourth quarter activity marks an 18% increase versus a year earlier.
Meanwhile, the fourth quarter availability rate was 15.1%,down 1.7 points from the third quarter and 4.4 points versus a year ago.
In contrast, overall rent of $23.30 rose by 2% compared to the third quarter and by 3.5% versus a year earlier,just about in line with inflation.
Airport Area Hot
Leasing volume during the fourth quarter was driven primarily by the airport area submarket, where activity increased by 779,836 square feet, or 56%, versus the third quarter and 47% compared to the fourth quarter of 2003.
Ten of the 15 major fourth-quarter transactions took place in the airport area. Tenants included companies in the finance, title, mortgage, energy and electronics industries, as well as law firms.
The overall availability rate in the airport area was 16.1%, a decline of 2.6 points from the third quarter rate and down 4.5 points from a year ago. This was still the highest availability rate in the county.
Overall rent of $24.95 rose by 3.4% versus last quarter and by 6% compared to last year. Class A rent of $27.56 also increased, but more moderately,by 2.5% for the quarter and 4% for the year. These were the highest rents in the county.
North County continued to post the lowest availability and rental rates in the county.
The overall availability rate was 10.4%, up slightly from last quarter but down from last year. The class A availability rate of 8.7% was down 3.3 points from last quarter and 8.2 points from last year.
Average rent of $18.59 showed minimal change from last quarter but increased 2% from last year. Class A rent was $21.59, up 9% for the quarter and 11% versus a year earlier.
Analysis by Studley.
