OFFICE MARKET
Vacancy Rate Falls, Absorption on Rise, Lease Rates Decline
Activity in the office market picked up in the second quarter as the war in Iraq ended and employment figures were rosier.
Vacancy
The office vacancy rate fell to 15.6% in the quarter. That’s back to where it was in the second quarter last year.
Absorption
All market areas in Orange County saw positive activity during the second quarter. More than 1.3 million square feet of office space was absorbed in the quarter, reversing the negative absorption seen during the first quarter of the year.
About 405,000 square feet of sublease space was absorbed in the second quarter, accounting for nearly 30% of the net absorption.
Sublease space accounted for 12.1% of total office vacancy by the end of the quarter, compared to 14.2% the previous quarter.
To date, total net absorption for the year has reached nearly 1 million square feet.
Almost all of the positive activity in the market has taken place in the class A sector, where net absorption for the first half of the year reached 1.3 million square feet.
Lease Rates
Landlords continued to adjust asking rents downward through the second quarter to compete with the remaining sublease space left vacant.
As a result, the average asking lease rate for Orange County dropped four cents during the second quarter, dipping below $2 for the first time since the second quarter of 1999.
Asking rent declines were seen in North County, the John Wayne Airport area and South County where sublease space made up more than 10% of total vacancy.
Conversely, both the Central and West County areas, with little sublease vacancy, posted lease rate increases of three cents and two cents, respectively.
The asking rent trend for office space in Orange County is expected to turn higher again with the continued positive absorption of the remaining sublease spaces.
Construction
Four projects with a total of 13 buildings completed construction in the second quarter. They added nearly 665,000 square feet of space.
The new projects include the Arena Corporate Offices in Anaheim, a three-building low-rise project totaling 383,250 square feet; the Arbours Office Campus project in Rancho Santa Margarita, made up of eight smaller buildings totaling 62,258 square feet; the Vantis project, a five-story building in Aliso Viejo; and another two-story addition to the Irvine Tech Center in the greater airport Area.
With five low-rise projects breaking ground during the second quarter, remaining construction activity in Orange County totals 581,422 square feet, all of which is set to be finished by year-end.
Analysis provided by CB Richard Ellis’ information management department.
