Office Market
Strong fundamentals, including a diverse economy and quality labor force, continue to make Orange County a key market for office tenants looking to expand or relocate.
The strong desire to be in the area has resulted in office sector job growth and positive absorption in nearly every quarter for the past two-and-a-half years.
With year-to-date positive absorption of 1.2 million square feet, the county is on track to repeat the solid performance seen in 2003 when it posted 2.8 million square feet of positive absorption.
Continued growth in lease and sale activity has significantly reduced the supply of office space available, particularly for tenants seeking large contiguous blocks.
Of the roughly 91 million square feet of existing office space in the county, only 12.7% sits unoccupied, the lowest vacancy rate seen since the beginning of 2001.
Net Absorption
Year-to-date absorption stands at 1.2 million square feet, outpacing last year’s mid-year performance by more than 20%.
South County landlords have grabbed the lion’s share of the occupancy growth since the beginning of the year, posting nearly 600,000 square feet of positive net absorption in their buildings.
Tenants have continued their “flight to quality” this year, taking the opportunity to lease up quality space; class A space has accounted for half of the growth in 2004.
Vacancy
Vacancy has declined across the county for five consecutive quarters. With average absorption of nearly 900,000 square feet per quarter, countywide vacancy now sits at 12.7%.
Key to this decrease has been the reduction of sublease opportunity; sublease space has fallen in half in the past 15 months. North County and Central County remain the tightest markets in the county at 9.3% and 9.8% vacant.
The largest concentration of vacant space is clustered in the greater John Wayne Airport area, where nearly 6 million square feet still are unoccupied.
Lease Rates
At $1.98 per square foot, average asking lease rates remain substantially lower than the $2.30 average in 2001.
As space continues to tighten, asking rents likely will increase at a quicker pace in the next six to 12 months. Newport Center remains the most expensive submarket in the county at $2.92 per square foot while the Santa Ana Civic Center remains the most affordable area at $1.43 per square foot.
Class A space and high-rise asking rents flattened this quarter at $2.21 and $2.26, respectively.
Construction
Construction activity has been fairly limited since the dot-com bust in 2001. The only building to complete construction this quarter was a redevelopment in the Irvine Spectrum of 70,000 square feet.
There is more than 420,000 square feet being built, with 68% under construction in South County.
