By SIMON DILLON
Office vacancy in Orange County’s John Wayne Airport/Central Coast region fell to 6% in the first quarter from 9.5% a year earlier.
Some recent lease deals at PS Business Parks’ Orange County Business Center totaling about 100,000 square feet contributed to absorption of 600,015 square feet of office space in the area in the quarter.
Office lease rates were up 11.7% to $2.29 per square foot, compared to last year. Lease rates were up 6% from the fourth quarter.
Based on the lease rate trends, the 4% annual increases typically seen in recent leases seem reasonable. But the 4% increases are being challenged by some tenants.
The office market is red-hot for space less than 5,000 square feet. Tenants may be subject to bidding wars in this segment.
Meanwhile, activity has slowed significantly for larger office space. There currently are few options for tenants looking for large blocks of space.
Mortgage companies have been giving back some large blocks of space and office construction has picked up, which should add more space next year or in 2008.
There was 3.7 million square feet of office construction under way at the end of the first quarter.
Expect rental growth to continue for the next few years but at a reducing pace.
In the airport/central coast area’s retail sector, lease rates in the first quarter rose 0.4% to $2.29 per square foot compared to a year ago. Vacancy rates fell 34.1% to 2.9% in the period.
There was 133,150 square feet of retail absorption in the quarter. About 2.8 million square feet of retail space was under construction at the end of the quarter.
The manufacturing and warehouse sector recorded a 12.1% drop in average asking rents to 51 cents per square foot in the first quarter. Absorption was 260,921 square feet and the vacancy rate fell 8.6% to 3.2%.
Rents for research and development space rose at an annual clip of 2.5% to 83 cents per square foot in the period. Vacancy fell 8.9% to 4.1%, compared to a year ago, with 291,111 square feet of absorption.
In all, the airport/central coast region posted 1.3 million square feet of net absorpiton in the first quarter. There was 7.3 million square feet of office, retail, R & D; and manufacturing space under construction at the end of the quarter.
Dillon is a vice president in the Newport Beach office of CB Richard Ellis Group Inc.
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