By SIMON DILLON
Orange County’s high-rise office vacancy rate fell to 7.5% in the second quarter, down from 11.5% a year ago.
The 35% decline in vacancy helped boost asking rental rates by about 10% to $2.44 per square foot in the quarter.
In addition, rental concessions such as free rent and moving allowances have decreased.
High-rise rates have increased so fast that tenants now are looking at less expensive alternatives. This has slowed the leasing pace slightly for high-rise office space. It’s also impacted low- and mid-rise buildings in a positive way.
Low- and mid-rise buildings are leasing up rapidly, which will put another wave of upward pressure on high-rise space is expected, due to the lack of alternates for tenants.
New construction also has put some “subjective” pressure on rates. The rates needed for high-rise construction to make sense are about $3.25 to $3.75 per square foot.
Rates are expected to get to those levels in the next few years,not only in new buildings but also in high-rise buildings that are more than 20 years old in some cases.
Most of OC’s high-rise office space is in the John Wayne Airport/coastal area. The airport/coastal area has about 64% of the county’s nearly 25 million square feet of high-rise office space.
Von Karman Towers is an example of a 20-plus-year-old class A high-rise office project in the center of the airport/coastal area that recently has undergone a big lobby renovation. This demonstrates landlords’ confidence in the market.
Von Karman Towers signed a number of new leases during the past quarter near the $2.50 per square foot level. Tenants signing leases include PM Realty Group, Birtcher Real Estate Group and Krusz Co.
The growing economy and lack of developable sites for office construction is expected to continue boosting the high-rise office rental market for the foreseeable future.
Dillon is a vice president in the Newport Beach office of CB Richard Ellis Group Inc.
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