Solid demand for Orange County office space continued in the third quarter with 1.2 million square feet of positive net absorption.
The positive absorption reduced the amount of available space to 14.6%, with the vacancy rate also falling, to 11.5%. Orange County’s declining available space has pushed average asking lease rates to $1.99 per square foot and is transitioning the market to a more landlord-controlled one.
The moderate increase in rents is fueled by office space demand from companies moving to the county and tenants looking to expand their existing operations.
There are six projects under construction. About 475,000 square feet of office space is expected to be completed in the next nine months.
Net Absorption
The third quarter produced 1.2 million square feet of positive net absorption, bringing the year-to-date total to 2.5 million square feet.
Solid absorption in the quarter has put the Orange County office market on track this year to beat last year’s 2.8 million square feet of positive absorption.
Most activity is in the greater John Wayne Airport area, which accounted for 65% of total net absorption. Low-rise office space represented about 900,000 square feet of positive net absorption.
Vacancy
Orange County office vacancy rates ended the third quarter at 11.5%. It’s the sixth straight quarter of falling vacancy, including a 10% drop from the previous quarter.
Vacancy for class B office space fell 9% to 12.9%. North County posted the largest decline in vacancy, down 22% to 7.6%. Central County has the county’s second-lowest vacancy rate at 9.6%.
Lease Rates
Lease rates increased a penny in the third quarter to $1.99 per square foot. The minimal rise in asking rents was a result of declining available space.
The greater John Wayne Airport area has the county’s highest lease rate at $2.14 per square foot. North County has the lowest rate at $1.68 per square foot.
Two regions didn’t see increases in third-quarter rent: South County was unchanged versus the second quarter at $2.01 per square foot, and West County posted a one-cent decline to $1.77 per square foot.
Construction
Office construction completions picked up in the third quarter with four projects totaling 37 buildings and 274,236 square feet wrapping up,a 56% increase from the prior year.
All but one of the new office developments are class B low-rise projects in South County. One class A low-rise building was finished in Central County.
Only three projects (five buildings) totaling slightly more than 100,000 square feet are expected to be finished in the fourth quarter.
Analysis provided by CB Richard Ellis Group Inc.’s Information Management Department.
