The year 2000 proved to be a prosperous one, as vacancy rates in the
office
market remained in single digits, annual absorption topped 4 million square feet, and average asking lease rates reached an all-time high in Orange County.
Vacancy Rates
Although vacancy rates for office space in OC have been dropping steadily over the past year, the rate rose to 9.6% in the fourth quarter, up from 9.0% in the third quarter. In addition to newly constructed non-leased product entering the market, this rise in vacancy may indicate the beginning of a temporary slowdown brought on by the weakening dot-com sector that is streaming sublease space into the office market. Despite the tick upward, vacancy rates dropped from the 10.1% rate in the final quarter of 1999 and remained below 10% throughout the year, demonstrating the continuing attractiveness of Orange County.
Net Absorption
Abundant strong demand pushed total net absorption for 2000 to more than 4.4 million square feet, the most seen annually over the past 10 years. Net absorption reached positive 643,567 square feet in the final quarter of 2000; however, activity cooled considerably from the lofty figures seen in earlier quarters of the year. The Greater Airport Area’s absorption was hit the hardest by a nearly 300,000-square-foot relocation of Verizon Wireless to the Irvine Spectrum in South Orange County.
Average Asking Lease Rates
The average asking lease rate for office space jumped to a record high of $2.27 per square foot per month in OC, a 5% quarterly increase. The greatest quarterly rent spike was seen in South Orange County, where most of the new, non-leased construction came on the market with asking rates ranging from $2.00 to $2.95, bringing the average up 13 cents per square foot to $2.45. The Greater Airport Area, where some asking rents reached more than $5.00, topped the market with an average asking lease rate of $2.53. North, Central and West Orange County continued to report average asking rents well below $2.00 per square foot.
Construction
During the fourth quarter, construction was completed on 19 buildings totaling 1,256,725 square feet. One building was finished at the Brea Corporate Park in North Orange County and another was completed at the Alton Corporate Center in the Airport Area.
The remainder of the projects added to the market in the fourth quarter are concentrated in South Orange County, including the Discovery Business Center, Mission Ridge, Pacific Vista, Palm Terrace and the new Verizon buildings. Construction activity continued into the New Year as ground was broken on 543,225 square feet in the fourth quarter, bringing the total amount of space under construction to 3.9 million square feet.
The Orange County
industrial
market performed well throughout 2000, with steadily falling vacancy rates, strong sale and leasing activity, positive net absorption and continued new development.
Vacancy Rates
Driven by more than 5 million square feet of sale and leasing activity during the fourth quarter, the industrial vacancy rate in OC declined to a low of just 1.1%, down from 3.6% at the end of 1999. While the research and development vacancy rate dropped a full percentage point to 2.8%, the manufacturing and warehouse rate fell below the 1% mark to just 0.7%. Availability rates, which include space marketed for lease, but not yet vacant, also decreased drastically during the year. The availability rate for R & D; space fell to 7.0% at the end of 2000, well below the double-digit rate of 11.3% reported in the fourth quarter of 1999.Availability for M & W; space dropped to 4.3%, down from 5.9% in the same quarter of last year.
Net Activity
Activity in the Orange County industrial market accelerated during the final quarter of the year as more than 5 million square feet were leased or sold, bringing the total activity for 2000 to approximately 19.1 million square feet. Enhanced by the increased sale and leasing activity, the industrial market experienced 2,357,389 square feet of net absorption during the fourth quarter. More than 1.7 million square feet of the space was absorbed in the M & W; market, 41% in the North Orange County area.
Average Asking Lease Rates
The average asking rent for industrial space in Orange County inched up 1 cent during the fourth quarter, to 63 cents per square foot per month, mostly due to the tightening M & W; market. South Orange County continued to dominate the rent scale, with asking averages of 69 cents for M & W; space and 85 cents for R & D; space. The Airport Area followed closely behind South County, with average asking lease rates 2 cents lower in each category.
Construction
The Orange County industrial market wrapped up a strong year of construction activity with the completion of 486,838 square feet in the fourth quarter, pushing the total construction finished during 2000 to more than 2.2 million square feet. M & W; development accounted for the majority of the annual construction activity; 42% of that was in North Orange County and 40% in South Orange County. South Orange County was the hub of most of the year’s R & D; construction. Activity remained strong as the year came to a close. Ground was broken on nine new buildings during the fourth quarter, adding 261,775 square feet to the projects already in development throughout the county.
retail
market ended 2000 on a healthy note, with a falling vacancy rate, positive absorption, and escalating asking rents.
Vacancy Rates
The vacancy rate for retail space in the county dropped in the fourth quarter to 7.9%, down from 8.1% in the third quarter. The power center category, home to big-box tenants such as those in the home improvement industry, ended the year with the lowest vacancy rate in the market at just 6.1%, a drop from 7.4% in the third quarter. Although specialty centers, which include entertainment-themed retail centers, ended the year with the only double-digit vacancy rate at 10.3%, that has dropped from the 13.2% rate at the end of 1999.
Net Absorption
Retail net absorption remained positive throughout 2000, ending the year with a total of 586,095 square feet absorbed, approximately the same amount of space absorbed in 1999. However, unlike the previous year, the majority of the net absorption in 2000 took place in the beginning of the year, continuing from the strong year-end activity during the fourth quarter of 1999. Net absorption tapered to 85,360 square feet in the final quarter of 2000. Lease Rates
The average asking lease rate for retail space shot up to $1.72 per square foot per month in the final quarter of 2000, after standing stable at $1.67 the previous quarter. South Orange County saw the highest jump in the market as the asking average rate rose from $1.88 in the third quarter to a fourth quarter average of $2.01, an increase of 7%. The Central Coast area topped the market, closing the year with an average rent of $2.07 per square foot. Although specialty centers boasted the highest average year-end rate of all center types at $2.02, the power center sector experienced a 41% annual rent spike to $1.80, up from $1.27 in the fourth quarter of 1999.
Construction
The retail market in Orange County grew by 1,323,435 square feet during 2000, with the completion of seven new shopping centers. The Oaktree Village Center, a 150,000 square-foot neighborhood center in Irvine was completed during the fourth quarter. Two new centers broke ground in the final quarter of the year in South Orange County, adding 230,000 square feet to construction activity. A second phase of the Foothill Ranch Towne Center, a community center, broke ground in October. Down the road in Lake Forest, construction was begun in November on the Foothill Gateway plaza, an 80,000-square-foot specialty center. Including these two centers, a total of 1,555,000 square feet of retail space were under construction in Orange County, with another 2.2 million square feet in the planning pipeline.
Tight financial markets and the threat of a slowing economy contributed to a drop in the total number of Orange County
hotel
transactions to 28 in 2000 from 36 in 1999. Fourth quarter activity, however, was up slightly, with five sales for the period, compared to three in the prior year.
The largest single sale last year was the Ramada Inn Conestoga in Anaheim, a 255-room hotel with a price tag of $12 million. That was followed by the 253-room Holiday Inn Anaheim at the Park, which sold for $7.9 million, and the Hanford Hotel in Buena Park, a 175-room hotel that sold for $6.2 million. The Ramada Conestoga and Holiday Inn were both ranked among OC’s largest 50 hotels, according to the Business Journal’s most recent list.
The largest sales last year on a price-per-room basis were both in Laguna Beach. The Casa Laguna Inn had a price tag of $114,286 per room, while the Coast Inn sold for $87,083 per room.
The 28 hotel sales in 2000 came with a total price tag of $78.2 million and an average sales price of $2.8 million. In comparison, the 36 transactions in 1999 brought $199 million, with an average sales price of $5.5 million. The average price per room in 1999 was $49,241, while the average price per room in 2000 was $45,341.
These figures reflect the smaller size of hotels sold in 2000 and the inclusion in 1999 of the $75.2 million sale of the Anaheim Marriott, a 1,087-room hotel in the city’s resort district. Last year, the average number of rooms per transaction was 71, vs. 98 in 1999. When the Anaheim Marriott is removed from the equation, the total value of the sales transactions in 1999 was $123.2 million, with an average sales price of $3.5 million. Without the Marriott, the average number of rooms per sale in 1999 drops to 69.
Not surprisingly, Anaheim saw the most activity in 2000, with 11 properties ranging in size from 31 rooms to 255 rooms changing hands. In addition, two motels in Garden Grove,bordering the Anaheim tourist district,changed hands. Meanwhile, only four hotels in South County,the Coast Inn and Casa Laguna Inn in Laguna Beach, the Quality Inn Suites in Dana Point, and the Villa Del Mar in San Clemente,were sold during the year. Huntington Beach had three transactions, as did Buena Park, which is making its own bid to better compete in the tourism market.
In all, the 28 sales in 2000 encompassed 1,977 hotel rooms, compared to 3,514 rooms accounted for in the total 1999 transactions.
,Source: Atlas Hospitality Group, Costa Mesa
These are the major commercial buildings under
construction
in Orange County:
OFFICE
STADIUM GATEWAY
1900 S. State College Blvd.
Anaheim
250,000 sq. ft.
Class: A
Completion date: July
Owner: Mack-Cali Realty Corp.
Developer: Summit Commercial Properties
Leasing co.: Cushman & Wakefield
Agents: David Dowd, Greg Brown
TWIN TOWERS
1 MacArthur Place
Santa Ana
205,320 sq. ft.
Completion date: June
Owner: Nexus Development Corp.
Developer: Nexus Development Corp.
Leasing co.: Nexus Development Corp.
Agents: Jeffrey Bitetti
KOLL CENTER IRVINE
NORTH PHASE II
1901 Main St.
Irvine
172,247 sq. ft.
Class: A
Completion date: September
Owner: Koll Development Co.
Developer: Koll Development Co.
Leasing co.: CB Richard Ellis
Agents: John Weiner, Jeffrey Morgan
SUMMIT PHASE 4, BLDG. L1
15 Enterprise
Aliso Viejo
150,000 sq. ft.
Owner: AEW/Parker LLC
Developer: AEW/Parker LLC
Leasing co.: Summit Leasing @ CB Richard Ellis
Agents: Ted Snell, Carol Trapani, John Desper
SUMMIT PHASE 4, BLDG. M
25 Enterprise
Class: A
Completion date: June
FOOTHILL PLAZA, BUILDING A
17422 Portola Parkway
Foothill Ranch
104,839 sq. ft.
Completion date: May
Owner: Searles Devcorp
Developer: Searles Devcorp,
Foothill Ranch Co.
Agents: Don Nourse, Gregg Haly, Lin Stinson
FOOTHILL PLAZA, BLDG. B
27422 Portola Parkway
Class: A
Leasing co.: CB Richard Ellis
SPECTRUM POINTE
1 Spectrum Point Drive
Lake Forrest
75,000 sq. ft.
Completion date: March
Owner: Olen Properties Corp.
Developer: Olen Properties Corp.
Agents: Jon Marchiorlatti, Jeff Carr, Jim Menconi
ALTON CORPORATE CENTER
1901 E. Alton
66,800 sq. ft.
Class: A
Completion date: August
Owner: ORIX Searles
Developer: Searles Devcorp
Leasing co.: CB Richard Ellis
Agents: Don Nourse
TOWN CENTRE@LAGUNA WOODS
24351 El Toro Road
Laguna Hills
65,553 sq. ft.
Owner: Polygon Development
Developer: Polygon Development
Leasing co.: John Gillespie
Agents: John Gillespie
INDUSTRIAL/FLEX
ORIGEN BUSINESS PARK
Garry Avenue
Santa Ana
218,000 sq. ft.
Type: industrial
Owner: Ewing Development Inc.
Developer: Ewing Development Inc.
Leasing co.: Ewing Development Inc.
Agent: N/A
WARLAND/CYPRESS BUSINSS PARK
Katella Avenue @ Valley View Street
Cypress
91,618 sq. ft.
Completion date: March
Owner: Warland Investments Inc.
Developer: Warland Investments Inc.
Leasing co.: Voit Commercial Brokerage
90,000 sq. ft.
Type: industrial
Agent: N/A
PACIFIC COMMERCENTRE
PHASE I
26250 Enterprise Way
Lake Forest
76,870 sq. ft.
Type: flex
Owner: Bixby Land Co.
Developer: Bixby Land Co., Gale & Wentworth CA LLC
Leasing co.: Cushman & Wakefield Inc.
Agents: Scott Garmon , Bob Griffith
1321 S. STATE COLLEGE BLVD.,
BLDG. 2
Fullerton
74,500 sq. ft.
Completion date: April
Owner: for sale
Developer:
Leasing co.: Colliers-Seeley
Agent: Keith Wilson
UNIVERSITY
RESEARCH PARK
5211 California
63,440 sq. ft.
Completion date: August
Owner: The Irvine Company
Developer: The Irvine Company
Leasing co.: Irvine Industrial Co.
Agents: Tom Greubel, Michael Hodges, John Turner
5221 California
Irvine
Type: flex
IRVINE TECHNOLOGY CENTER
410 Exchange
62,850 sq. ft.
Owner: The Irvine Company
Developer: The Irvine Company
Leasing co.: Irvine Industrial Co.
Agents: Tom Greubel, Michael Hodges, John Turner
440 Exchange
Irvine
Type: flex
Completion date: April
BEDROSIAN FREEWAY BUSINESS CENTER, BLDG. 5
1005 N. Edward St.
59,859 sq. ft.
Type: industrial
Completion date: August
Owner: Bedrosian Interest
Developer: Bedrosian Interest
Agents: Rick Ellison
