OFFICE MARKET
Asking Rents Fall, Vacancies Higher, Net Absorption Down
Market indicators for the office market stayed relatively flat in the first quarter.
But the class A market saw positive activity during the quarter, suggesting that tenants are taking advantage of lower rents and activity to move to higher-quality space. The vacancy rate for class A space fell to 17.1% in the quarter, down from 17.4% the prior quarter, with positive net absorption of 125,521 square feet.
Vacancy
The availability rate for office space ended the first quarter at 20.1%, vs. 20% the prior quarter, showing some stability in the office market.
The vacancy rate for Orange County office space rose to 16.4% in the first quarter, up from 15.9% in the December quarter.
The amount of available sublease space dropped in all areas in the county, with exception of South County, where about 270,000 square feet of new sublease space came to market.
Net Absorption
Net absorption for office space was negative 398,197 square feet in the first quarter.
Part of the negative absorption resulted from the time lag between when a lease is signed for new space and when a company vacates its previous space.
When CNA Insurance moved to a different building in Brea, about 125,000 square feet of negative absorption was reported in North County.
The positive absorption for that move was reflected in CB Richard Ellis’ fourth quarter 2002 statistics, when the new lease was signed at 675 Placentia Ave. in Brea.
Comparing last quarter’s positive absorption of 390,828 vs. this quarter’s negative absorption suggests that market activity is relatively stable: the two amounts net to negative 7,369 square feet.
Lease Rates
Continued pressure on rents lowered the average asking rate three cents in the first quarter to $2.01 per square foot.
In the past year, the average asking rent for OC office space has dropped nine cents, or 4%.
The greater John Wayne Airport area, which boasts the highest rent in the county, has led the downward trend, falling 14 cents per square foot in the past four quarters.
Construction
Two new office projects were completed in the first quarter. Both are in South County.
One campus project, comprising multiple one-story buildings, was finished in the Irvine Spectrum, adding 34,684 square feet to the market.
Another class A low-rise building completed construction in January, adding 40,000 square feet of office space to Mission Viejo.
With no new construction started in the quarter, remaining office development fell to about 845,000 square feet, including one 180,000-square-foot owner-user complex in Costa Mesa.
Speculative projects under construction were 41% preleased as of the end of the first quarter.
INDUSTRIAL MARKET
Vacancy Rate Rises, Absorption Falls, Lease Rates Lower
The Orange County industrial market was hit by economic challenges in the first quarter.
Job losses in the industrial sector and war concerns has tenants taking a conservative approach to expansion plans and warehouse needs.
As a result, gross sale and leasing activity fell by 5% in the first quarter. Tenants remained most active for space 30,000 square feet and smaller.
Vacancy
About 4 million square feet of available industrial space for lease or sale came on market in the first quarter, increasing the availability rate to 8.5%, up from 7.6% the previous quarter.
The total industrial vacancy rate rose, too, but still came in less than 5%.
The vacancy rate for manufacturing and warehouse space ended the quarter at 4.2%, with research and development vacancy up to 7.5%.
Net Absorption
Gross activity slowed during the first quarter with sale and lease deals of about 2.4 million square feet, 5% less than the previous quarter.
Research and development space saw an increase in gross activity of 445,000 square feet in the quarter.
Manufacturing and warehouse space was affected by the loss of 2,600 jobs in the period, causing gross sale and leasing activity in the sector to slow to 1.9 million square feet, vs. 2.3 million square feet the prior quarter.
With nearly 1 million square feet of space turning vacant during the quarter, and the slower sale and leasing activity, net absorption for industrial space remained negative. A positive turn is expected once industrial employment growth and economic confidence grows.
Lease Rates
The overall average asking rent for industrial space fell three cents in the first quarter to 58 cents per square foot.
But the average asking lease rate fell just a penny vs. year ago.
The largest quarterly decline in asking rents was in West County, where the manufacturing and warehouse average lease rate fell six cents to 54 cents per square foot, and the research and development average asking rate fell five cents to 74 cents per square foot.
Construction
Construction activity increased slightly in the first quarter with groundbreaking on six manufacturing and warehouse buildings. That boosted construction under way in OC to about 818,000 square feet.
Of the current development activity, only one warehouse building greater than 100,000 square feet is under construction in the city of Huntington Beach.
Most of the buildings under construction are between 10,000 square feet and 50,000 square feet.
Two buildings completed construction in the first quarter, adding 53,216 square feet of research and development in the Irvine Spectrum.
