By MATT CHRISTENSEN
The Orange County low-rise office market saw another period of dismal activity in the first quarter.
The continued decline in overall economic activity, combined with a business community wary of economic policy changes associated with a new presidential administration, created an environment of indecision. The resulting anxiety was evidenced by the lack of movement in the market and the decision of many companies to exercise their renewal options, reduce their lease rates and shed some excess square footage.
In contrast, landlords across the county continued to reduce lease rates and increase incentives to attract both tenant and broker attention.
The low-rise office market comprises 55% of OC’s total office base and its overall vacancy currently stands at 13.4%, up from 13.2% in the fourth quarter. The increase in vacancy is the result of companies giving back underused space or going out of business. As it stands, companies have been positioning themselves to “hunker down” in anticipation for any sign of economic recovery.
The low-rise market has traditionally been the low-cost alternative, but today competes with a significant number of sublease opportunities in higher-image buildings.
In the first quarter, low-rise office space in all of OC posted negative 71,984 square feet of absorption. The bulk of negative absorption,191,029 square feet,was in the airport/costal area, which includes the cities of Irvine, Newport Beach and Costa Mesa, as well as other areas.
South County also posted negative absorption, at 4,646 square feet. Positive absorption was seen in West County, with 7,212 square feet; Central County, with 78,750 square feet; and North County, with 37,739 square feet.
Key Shift
Despite seeing another quarter of overall negative activity, tenants have become keenly aware of the shift that has occurred in the market. Using their leverage, lease rates are being compressed and concessions by landlords are common. Short-term deals now are viable business decisions as landlords accept temporary occupancy at reduced rates as they await an uptick in the economy.
In South County, a new wave of companies focusing on loan modification services has been capitalizing on eager landlords.
Securing short-term leases or subleases created in the wake of the mortgage bubble has landlords once again looking to an industry they are all too familiar with.
Christensen is an associate in the Newport Beach office of CB Richard Ellis Group Inc.
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