Nearly 40% of the Orange County office base is high-rise buildings, seven or more stories in height. Steadily increasing lease rates in the high-rise office market continue to motivate tenants to see lower-cost alternatives such as low-rise office and flex space. While the average asking lease rate for high-rise office space rose to $2.42 in the fourth quarter, the vacancy rate also rose to 11.64%. Absorption of high-rise space in the quarter totaled a negative 72,516 square feet.
The average asking lease rate for high-rise office space has been steadily increasing over the past five years. High-rise space continued to lead the office average asking lease rate climb in the fourth quarter. The $2.42 average rate was up 6% from $2.29 in the third quarter. The year-end asking lease rate for high-rise office space in Orange County is 33 cents (16%) higher than the 1998 year-end rate of 2.09.
The increased vacancy rate in the fourth quarter,up from 11.32% in the third quarter,is due primarily to the increasing prices of high-rise space. The largest portion of space vacated in the fourth quarter of 1999 was in North Orange County where the net absorption for the quarter was a negative 90,000 square feet, primarily due to the loss of one large tenant. High-rise space absorption for Orange County totaled a negative 42,242 for 1999.
Although most of the construction activity in the Orange County office market has been in low-rise projects, there is new development planned for the high-rise office market. One building, Lakeshore Towers II, broke ground early in the fourth quarter and will add 230,000 square feet to the market in Irvine. Two more buildings are expected to break ground early in 2000: the Twin Tower building in Santa Ana, which will be a pair of nine-story office buildings totaling 412,000 square feet, and Koll Center Irvine North, phase II, a 170,737-square-foot, eight-story office building in the Airport Area, which will be the twin office tower to Koll Center Irvine North, phase I that was completed in the third quarter.
