By DEAN CHANDLER
The vacancy level for high-rise office space in Orange County ended the first quarter at 7.5%.
The figure is for space directly from landlords and doesn’t include sublease space. The direct vacancy rate for high-rise office space in the greater John Wayne Airport area was slightly higher at 8.4%, representing a slight increase from the fourth quarter.
This compares to an overall office vacancy level of 6.9% for Orange County and 7% for the airport area for all types of office space (low-, mid- and high-rise). The result of this low vacancy has caused owners to remain bullish and continue to increase asking rates.
The average asking lease rates in the 70 high-rise office projects in the airport area continued to increase in the first quarter, rising 31 cents to $3.29 per square foot a month from the fourth quarter. High-rise asking lease rates in the airport area continued to exceed the high water mark of $2.95, set back in 2001.
Among the submarkets, the airport area claimed the highest asking lease rates in the county. Average asking lease rates for high-rise space also continued the upward trend by increasing to $3.06 per square foot, an increase of 30 cents, or 11% from the prior quarter.
For 2007, CB Richard Ellis’ Torto Wheaton is predicting a 7.8% increase in overall rental rates for OC Class A, B and C quality office space.
Average monthly asking lease rates for high-rise under construction range from $3.50 to $3.85 full service gross. Although preleasing of space has been somewhat slow, owners of new buildings anticipate activity to remain steady through the balance of 2007 and do not expect any decline in asking rental rates.
Absorption for high-rise space in the county was a negative 105,266 square feet for the first quarter. The negative absorption primarily was in the airport area and central county. This compares to a positive 266,698 square feet absorbed during the same period in class B properties.
So as rental rates have continued to increase, tenants are looking to lower quality buildings to help defer the increase in rates. The average asking rental rate for mid-rise space in the county is about 17% less than high-rise asking rates. The differential from class A to class B is approximately 18% less in cost.
Chandler is a senior vice president in the Newport Beach office of CB Richard Ellis.
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