The Orange County office market continues to possess the core fundamentals to maintain its stability into 2007. Steady demand and job growth coupled with the diverse economy, highly-educated workforce and deep international trade links create a unique environment for businesses and investors alike.
Despite the much talked-about downsizing of the mortgage industry, OC is able to attract a wide variety of new and expanding tenants to this entrepreneurial market and maintain high levels of occupancy.
OC’s office market, which includes nearly 95 million square feet, experienced a minimal 30 basis point rise in the direct vacancy rate during the first quarter, to stand at 6.9%. The overall vacancy level, including vacant sublease space, increased slightly 20 basis points to 8.3%.
Renewed demand for office space resulted in a positive 222,727 square feet of net absorption, following a relatively flat fourth quarter. The average asking rental rate increased to $2.66 per square foot, representing a significant 20 cent rise from the fourth quarter.
There was more than 400,000 square feet of new construction completed, with 83% of the space pre-committed at completion. The 2007 pipeline of new office projects totals 4.6 million square feet, of which 31% is pre-leased. An additional 659,000 square feet is expected to be completed in early to mid 2008.
Net Absorption
Following the pause seen in 2006, the first quarter brought increased demand, which resulted in 222,727 square feet of positive net absorption.
The majority of the activity was in the airport area, which generated a positive 171,735 square feet of absorption. The Central County market followed closely with 148,365 square feet of positively absorbed space. This activity was concentrated in class B properties, which experienced 266,698 of positive absorption.
Vacancy
The total vacancy rate for office space in OC rose slightly to 8.3% from 8.1% in the fourth quarter. North and West counties continued to hold the lowest rate of 5.3%, while Central County’s vacancy declined to 8.2%.
The vacancy rate for class A properties inched upward to 8.4%, which was primarily due to an increase in direct vacant space. Class C properties, however, experienced a decline of 30 basis points to 6.9%. Among the submarkets, vacancy rates ranged from the low 3.9% in the “town & country” submarket to 13.8% in downtown Anaheim.
Asking Rents
The overall average asking lease rate for OC offices increased 20 cents in the first quarter to $2.66 per square foot. This latest increase was a 16% rise over the first quarter of 2006, which stood at $2.29 per square foot.
Class A rates increased an additional 25 cents to $3.03 per square foot, while class B space ticked up 11 cents to $2.38. Class C space rose 9 cents to $2.04 per square foot.
All five submarkets experienced growth in average asking rates in the first quarter. The greatest rise was seen in the North County area, which added 28 cents to end the first quarter at $2.36, while the airport area also experienced a significant rise of 26 cents to hold the highest average asking rent of $2.87 per square foot.
Construction
Construction was completed on eight buildings totaling 419,856 square feet in the first quarter.
The majority of the construction occurred in the University Research Park in Irvine, which had four of its 14 buildings complete construction, totaling 299,856 square feet. The space now is occupied by Broadcom Corp.
Other completions include three buildings totaling 80,000 square feet in the Bacchus Office Park in the Irvine Spectrum. An additional low-rise property was completed in the Ladera Corporate Terrace, which added 40,000 square feet in Mission Viejo.
