High-rise office vacancy is on the rise in Orange County.
The overall vacancy level for OC’s high-rise space, not including sublease space, ended the third quarter at 12.2%. The direct vacancy rate for high-rise space in the greater airport area was slightly higher at 13.4%.
These percentages have increased almost 70% since last year.
Not much of a surprise based on record lows last year, plus, the completion of construction this year and a dramatic downturn in the mortgage industry.
The average lease rates in the high-rise office space were $3.18 per square foot. The greater airport area continued to grow in the third quarter, rising to $3.41 per square foot,almost 50 cents per square foot higher than last year. Overall average high-rise lease rates in the greater airport area continued to exceed the high water mark of $2.95, set back in 2001. Among the submarkets, the greater airport area held the highest lease rates in OC.
The recent collapse in the mortgage industry has been the key factor relating to the more than 540,000 square feet of negative absorption through the third quarter. Central OC accounted for the highest amount of that space with more than 306,000 square feet with the greater airport area second at 170,000 square feet of negative absorption through the third quarter.
Although OC has been affected by its large concentration of subprime lending companies, the office sector does possess a wide range of other business services, not related to the housing market. According to Torto Wheaton Research, employment data suggests that there is not much long-term effect overall and locations that are most at risk do not include OC.
The recent elevated levels of mortgage brokers and real estate agents only make up 9% of the finance, insurance and real estate employment, or just more than 2% of the office employment. There are some deep concerns about both of these sectors, but Torto Wheaton goes on to say that even the most catastrophic of job losses would have little to no long-term effect on office space as a whole, as long as the losses are isolated to the two industries.
Weiner is a senior vice president in the Newport Beach office of CB Richard Ellis Group Inc.
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