By JOHN DESPER
The market for low-rise office space continues to yield strong numbers, despite inconsistent tenant demand and the addition of 1.4 million square feet of space in 2006.
The performance of this market in 2007 largely will be influenced by job growth in Orange County with a sharp emphasis on employment stability in the mortgage industry.
Earlier this month, Fountain Valley-based consumer lender CashCall Inc. signed on to sublease 127,750 square feet of low-rise space at Arena Corporate Center, next to Honda Center in Anaheim.
The company is taking over the space from Orange-based ACC Capital Holdings Corp.’s Ameriquest Mortgage Co.
Low-rise office space of just more than 52 million square feet is more than twice as much as in the high-rise segment and accounts for 56% of the county’s 94.4 million square feet in office space.
The reason for its popularity is simple: lower occupancy costs, shorter construction times, size flexibility and the option to lease or buy.
While up from last year’s 6.4%, the vacancy rate of low-rise office space remains a healthy 8.4%.
Despite this increase in vacancy, average asking rents rose by 19% from a year ago to $2.32 per square foot per month.
The low-rise market recorded its fifth straight year of positive net absorption with 282,510 square feet absorbed for 2006, though that was down from 2.8 million for the same period a year earlier.
Owners of low-rise office space have good reason for long-term optimism as supply and demand fundamentals are in their favor.
While there is more than 1.3 million square feet of low-rise space expected in ’07, more than 1.2 million of that is preleased.
Combine this with the fact that the low-rise market has averaged more than 1.4 million square feet of positive net absorption in the past five years, a low vacancy rate and limited available land for construction, and you have a long-term supply and demand scenario that works in favor of building owners.
Desper is a first vice president in the Newport Beach office of CB Richard Ellis Group Inc.
Single- and multi-tenant buildings and parks of 30,000 square feet or larger, excluding government and medical buildings. Historical figures have been adjusted to reflect changes to the base and may not agree with previously reported ones. Absorbed square feet does not include preleased space. Lease rates are full service gross, per square foot per month, excluding free rent, tenant improvements and other concessions, if any, and weighted by vacant square feet.
