The Orange County office market consists of about 92 million square feet of space.
Increasing demand for office space continued during the third quarter as overall net absorption remained well above 1.5 million square feet.
This high level of absorption has led to a much-anticipated increase in average asking rents.
Rents rose 4 cents to $2.14 per square foot in the period, up 8% compared to last year, though it’s down 1% during the past five years.
Although nine buildings totaling 237,320 square feet completed construction during the third quarter, steady demand has driven vacancy levels to a record-low 6.8%.
Vacancy in the third quarter is down 18% from the second quarter and off an eye-opening 41% from a year ago. Vacancy has fallen on a quarterly basis for more than 2 years.
Tenants seeking space also are seeing a decrease in the inventory of sublease space. The amount of available sublease space has decreased 28% during the past year, from about 2 million square feet to slightly less than 1.4 million square feet.
Net Absorption
Together, OC office markets posted positive net absorption of 1.6 million square feet in the third quarter for a total of 3.7 million square feet this year.
South County and the greater John Wayne Airport area accounted for more than 1.3 million square feet of the total absorption in OC in the period.
North and West counties each had about 50,000 square feet of positive absorption in the period, with Central County recording about 134,000 square feet.
Vacancy
OC’s overall vacancy rate fell to 6.8% in the quarter from 8.3% in the second quarter.
Due to the moderate pace of new construction and OC’s favorable economy, it’s no surprise that vacancy levels continue to drop.
Central County, with 16.5 million square feet of total office space, had OC’s highest vacancy rate at 7.9%, while North County ended the quarter with the lowest vacancy rate of 4.6%.
Lease Rates
Average asking lease rates for the county increased to $2.14 per square foot from $2.10 last quarter.
A year ago, the average lease rate was $1.99 per square foot.
North County saw its average lease rate fall 2 cents to $1.75 per square foot compared to the second quarter. Central County’s rate rose 5 cents to $1.80 per square foot compared to the second quarter, with West County recording an increase of 8 cents to $1.91 per square foot.
Average asking lease rates in the greater John Wayne Airport area and South County rose 6 cents to $2.30 per square foot and 7 cents to $2.23 per square foot, respectively.
Construction
Construction was completed on nine buildings totaling 237,320 square feet in the third quarter.
Projects completed included six small office buildings of an eight-building project in Mission Viejo, which added 47,380 square feet to the OC base.
Wrapping up development were two buildings in Tustin totaling 119,940 square feet and a 70,000-square-foot, class A property in Irvine.
About 600,000 square feet of office space broke ground during the third quarter, bringing the total amount of office construction to 2.4 million square feet in OC.
Analysis provided by CB Richard Ellis Group Inc.’s Information Management Department.
