The Orange County office market encompasses approximately 57 million square feet, including 341,505 square feet of new office space that was completed in the fourth quarter of 1999. A total of more than 2 million square feet was added to the OC office market during 1999. The average asking full-service-gross lease rate continued to steamroll past the $2 threshold, closing the year at $2.12 per square foot. Strong leasing activity sealed the negative absorption gap by adding more than 637,000 square feet of positive absorption in the fourth quarter. The robust performance pushed the year-to-date total to nearly a half-million square feet of positive absorption. Due in part to the quick re-leasing of a large block of second-generation space in the Airport Area, the countywide vacancy rate dropped in the quarter.
Vacancy Rates
As first-generation space, supplied by the newly constructed office buildings, was absorbed during the quarter, the OC vacancy rate decreased to 11.35%, down from 11.70% in the third quarter of this year. Of all the submarkets, the Airport Area maintained the lowest rate, 9.25%, and the lowest vacancy rate of all building types, 10.61%, occurred within mid-rise space .
Net Absorption
The Greater Airport Area absorbed 514,286 square feet in the final quarter due to the recovery of more than 807,000 square feet, which was vacated during the third quarter, then quickly re-leased during the fourth quarter. A similar situation began to develop in North OC, with a large tenant vacating space, while the remaining areas continued to show strong activity. During the fourth quarter, the county as a whole experienced 499,424 square feet of positive net absorption in traditional office space. Demand for office space remains high, particularly in non-traditional projects, such as low-rise flex space and single-tenant buildings.
Average Asking Lease Rates
Accelerating a once-gradual climb, the average asking full-service-gross lease rate in the OC office market rose to $2.12 per square foot per month, a 4.4% increase from the third quarter and up 12.2% from the fourth quarter of 1998. The increase in the average asking lease rate was due primarily to a surge in availability of quality office space.
Construction
The OC office market closed out 1999 by completing approximately 2 million square feet of new office space. During the fourth quarter, 341,505 square feet of completions were delivered, virtually the same as the fourth quarter of 1998, when 345,593 square feet were delivered. The new year will continue to see strong construction activity, as approximately 2.5 million square feet of new office space were under construction at the start of 2000.
