By SIMON DILLON
The numbers tell the story: huge net absorption for Orange County high-rise office space in the third quarter,almost 2.4 million square feet this year.
This is a pivotal year in the Orange County office market. It represents a complete turn in market direction.
Vacancy rates have been steadily falling each quarter since the start of the year and are predicted to continue to fall into 2005.
The county’s office vacancy rate was 10.2% at the end of the third quarter, down from 13.1% a year earlier. Vacancy is expected to fall to the single digits by the end of the year.
So when is the rental spike going to kick in? How much will the rental spike be? Will this landlord’s market be different than in the past?
The rental spike is happening now for class A space in the John Wayne Airport area, which is taking the lead with other office types and submarkets to follow. Tenant alternatives haven’t been this limited since the dot-com days.
With quality class A office projects such as American Realty Ad-visor’s Newport Corporate Tower in Newport Beach hitting the 100% occupancy lev-el,for the first time in the building’s 12-year history,it’s no surprise that rates are on the rise.
Recent effective rental rates at Newport Corporate Tower are about 20% higher than rates at the end of last year. CB Richard Ellis Group Inc. expects to see consistent increases into 2005.
This landlord market is expected to be different from the past. Development options now are more limited, with many of the available sites already developed in previous real estate booms. And many of the remaining potential office sites are being used for residential development based on the superior returns achievable by building homes, condominiums or apartments.
Dillon is a vice president in the Newport Beach office of CB Richard Ellis Group Inc.
