OFFICE MARKET:
Absorption Picks Up, Vacancy Posts Gains, Lease Rates Improve
Last year’s lease and sale momentum in Orange County’s office market continued through the first quarter of 2004. Positive economic reports now point to solid growth ahead.
The county’s diverse labor pool, low unemployment and favorable climate continue to attract new and expanding companies to the area.
While many other office markets in the country still are recovering from the 2001 recession, Orange County has seen an average of more than 840,000 square feet of positive absorption in the past four quarters.
The countywide vacancy rate that hovered near 20% in early 2002 now sits at 13.8%. Average asking lease rates rose for the first time since the beginning of 2001.
Net Absorption
The Orange County office market saw some absorption gains in the first quarter, with most growth coming in submarkets along the San Diego (I-405) Freeway.
The Irvine Business Complex was the best-performing submarket in the county, with about 143,000 square feet of positive absorption.
Other areas seeing increases in occupancy were the Irvine Spectrum and South Coast Metro at 112,790 and 64,558 square feet, respectively.
Companies maintained their preference for class A space in the first quarter, though class B buildings also contributed, generating nearly 20% of the absorption seen in the county.
Vacancy Rates
Vacancy levels for office space in Orange County continued to fall in the first quarter as absorption levels remained positive.
The countywide vacancy rate dropped to 13.8% in the quarter, with many of the smaller submarkets seeing single-digit vacancy rates. The tightest market is Central County, where only 10.4% of the space sits unoccupied.
The John Wayne Airport area is the largest submarket in the county and, though vacancy remains low at 12.5%, the area still holds more than 2.4 million square feet of vacant space,the highest amount of vacant square feet in the county.
Lease Rates
Asking rents for office space in Orange County rose this quarter for the first time since the beginning of 2001.
The increase in average asking rents can be attributed to a penny per square foot rise for low-rise buildings.
Despite being one of the tightest markets in the county, Central County holds the second-lowest average asking rent,$1.67 per square foot. Only North County is lower at $1.65 per square foot.
Newport Center maintains the highest rates in the county at $2.94 per square foot. The countywide average came in at $1.97 per square foot in the first quarter.
Construction
With the price of steel on the rise and the amount of vacant land in Orange County continuing to fall, office construction remains low at less than 500,000 square feet under way.
Most construction in the county is low-rise projects; only one building under construction will have more than three stories.
The completion of two low-rise buildings in the greater airport area and a number of small buildings in the Irvine Spectrum added more than 200,000 square feet this quarter to Orange County’s rentable office base.
With more than 7.8 million square feet of office space in the planning phases, an economic expansion could spark a flurry of construction to suit the needs of companies looking for large blocks of space.
Analysis provided by CB Richard Ellis Inc.’s Information Management Department.
