The Orange County office market encompasses more than 83 million square feet of office product and is growing at a rapid pace. Since the third quarter of 1999, the base has increased by nearly 3.5 million square feet, mostly concentrated in the southern portion of the county.
Vacancy Rates
Vacancy in the Orange County office market tightened over the past year. In the third quarter, the vacancy rate continued the trend, dropping to 8.7% from 9.5% in the second quarter.
West Orange County, the smallest submarket within the office base, ended the third quarter with the lowest vacancy rate: 7.7%, down from 9.0% in the second quarter.
The Airport Area, traditionally the largest yet tightest submarket, ended the quarter at 7.9%, and South Orange County’s vacancy rate fell to 7.8%.
Net Absorption
High leasing activity in the office market pushed net absorption in the third quarter over the 2 million-square-foot mark, to 2,011,631 square feet. More than 75% of the absorption was experienced in the low-rise portion of the market, which generally benefits from the lower cost of space.
So far this year, net absorption in the office market has reached 3,974,971 square feet, approximately three times as much as was experienced by the same time last year.
Average Asking Lease Rates
Increased construction activity in the office market pushed the average asking lease rate up to $2.16 per square foot per month in the third quarter. Since the average is weighted by the amount of available square footage in the market, large fluctuations occur when new, expensive construction is delivered and absorbed quickly.
The Greater Airport Area and South County markets topped the average with asking rents of $2.48 and $2.32, respectively. Average rents in North, Central and West Orange County remained under the $2.00 threshold through the third quarter.
Construction
To date, more than 3 million square feet have been added to the office market, nearly half of which were completed during the third quarter.
The first high-rise building constructed since the third quarter of 1999 was completed in July, adding 230,000 square feet to the city of Irvine. The remaining construction completed during the third quarter consisted of low-rise class A and B buildings scattered throughout the Greater Airport Area and South Orange County.
The Orange County Industrial Market consists of 6,448 buildings totaling nearly 240 million square feet. Manufacturing and warehouse space makes up a majority (83%) of the industrial square footage. Research and development properties account for the remaining 17% of the market.
Vacancy Rates
Availability rates in the Orange County industrial market have been on a declining trend over the past year. The trend continued through the third quarter as the availability dropped to 5.6% and actual vacancy dropped to just 1.9%, due to increased sale and leasing activity. Vacancy for M & W; space dropped 6% to 1.5% in the third quarter, and the R & D; vacancy rate dropped 20% to 3.8%.
Net Activity
During the third quarter, net absorption of industrial space reached a positive 800,432 square feet. Although the R & D; sector experienced positive absorption of more than 65,405 square feet, the majority (91%) of the absorption during the third quarter took place in the M & W; sector.
Average Asking Lease Rates
The average asking lease rate for all industrial space rose 1 cent in the third quarter to 62 cents per square foot per month. M & W; asking rates rose an average of 3 cents per square foot in the third quarter to 58 cents.
The high demand for new R & D; space caused an odd phenomenon as it depressed the weighted average for asking lease rates. The new R & D; construction was either pre-leased before completion or absorbed within the quarter leaving the older, less-expensive space on the market, which in turn pulled down the average. The lease rate for R & D; space dropped to 75 cents per square foot in the third quarter, down from 79 cents in the second quarter.
Construction
Year-to-date, approximately 1.2 million square feet have been added to the industrial in OC.
At the end of the quarter, approximately 2.4 million square feet were under construction in the market. North Orange County accounted for most of this construction, with 14 M & W; buildings totaling 910,286 square feet in the development stages. The remaining 1.3 million square feet of M & W; construction were divided among the West, Airport Area and South Orange County markets.
R & D; construction under way totaled 98,075 square feet and was concentrated in the cities of Garden Grove in West Orange County and San Clemente in South Orange County.
The Orange County Retail Market includes 454 buildings that total more than 71 million square feet of gross leasable retail space.
Vacancy Rates
As construction activity has been filling the demand for retail space in Orange County, retail vacancy rates have remained relatively stable over the past year. The vacancy rate ended the third quarter at 8.0%, the same vacancy reported in the third quarter of 1999 as well as the second quarter of this year.
The Central Coast market area and South Orange County have the lowest vacancy rates, each at 7.4%, and the Central Orange County market is not far behind with a vacancy of 7.5%.
Net Absorption
Positive activity increased during the third quarter as net absorption reached 118,780 square feet, a 24% increase over the absorption of the previous quarter. The Central and South Orange County market areas led the positive quarterly absorption, despite a newly constructed center added to the South County market.
Year-to-date, net absorption has reached a total of 521,779 square feet, approximately 200,000 square feet ahead of the activity experienced during the same period last year.
Lease Rates
Average asking lease rates, which spiked to a high of $1.67 per square foot per month in the second quarter, maintained the same rate in the third quarter. Actual asking prices throughout the county range from a low of $1.16 to a high of $2.65 per square foot.
In the third quarter of 1999, asking rents for retail space in Orange County hovered at an average of $1.51.
Specialty centers, which include entertainment-themed projects, have the tightest range of asking rents in the market ($1.93 to $1.96), and highest average at $1.95 per square foot.
Construction
So far this year, the Orange County retail base has grown by 1,313,839 square feet due to the completion of seven new centers, including a 310,000-square-foot power center completed in South Orange County during the third quarter.
New construction activity slowed as only one new specialty center in Central Coast broke ground this quarter, which will add 180,000 square feet to the retail market upon completion.
Combined with the five other centers under development, a total of 1,475,000 square feet is on line to be added to the Orange County retail base.
