Real Estate Watch: Low-Rise Office Space
Demand for Low-Rise Space Rebounds
In the past few years, the supply of low-rise office space in Orange County has changed from limited to abundant.
While several low-rise projects completed construction in 2001, many of the companies that would have occupied them were in financial difficulty. By year-end 2001, the combination of new space and tenant absence resulted in negative absorption and much lower asking lease rates than the year prior.
But things turned around by mid-2002, with the demand for low-rise space starting to level out. The county now has seen positive absorption for three consecutive quarters.
Despite the modest performance of the low-rise office market last year, a few areas of the county showed strong signs of recovery and improvement.
Demand for small buildings remained strong countywide as many companies looked to buy rather than lease to take advantage of historically low interest rates.
In addition to owner-user purchases, low interest rates also spurred a few large deals in South County by mortgage companies looking to capitalize on the abundance of home construction in the area.
North and South County produced the highest year-end absorption figures at 373,080 square feet and 411,003 square feet, respectively. The John Wayne Airport area, Central County and West County combined for slightly more than 80,000 square feet of absorption among them.
Although vacancy stabilized in the past year (down just 0.7%), lease rates for low-rise office space fell by 17 cents per square foot in the past twelve months.
An influx of inexpensive sublease space caused by companies downsizing forced landlords to competitively reduce their direct asking lease rates to attract new tenants and retain current ones.
The completion of the four building Newport Technology Center this quarter added 418,385 square feet of competitive space to the John Wayne Airport area.
There are also six projects currently under construction throughout the county that will add 740,000 square feet of low-rise space by September.
Notably, the Arbors Office Campus in Rancho Santa Margarita and the Truman Corporate Plaza in the Irvine Spectrum are two projects in South County that will provide 13 small buildings for sale between 5,000 square feet and 15,000 square feet in size.
Analysis provided by CB Richard Ellis’ Global Research and Consulting.
