By JUSTIN HILL
The Central and North County commercial real estate markets are not immune to the volatile economy.
Like many industries, commercial real estate saw a rough end to 2008. The retracting U.S. economy continued to cause tenants to be cautious in making real estate decisions and decreased the number of deals in Central and North County.
Because of the lack of activity, lease rates started to decline, landlord concessions increased to attract deals and the vacancy rates started to move up in all sectors of commercial real estate countywide.
Although vacancy did increase, it remained relatively flat from the third quarter to the fourth quarter, with office space going from 15.7% to 15.4%; retail space from 4.2% to 6.2%; manufacturing and warehouse space from 3.6% to 3.9%; and research and development space remained flat at 1.4%.
Big Changes
What did change significantly during the fourth quarter was the average asking lease rates. Landlords for the first time in past few years started to see decreasing tenant activity and slowing demand for space, which encouraged reduced rates and increased concessions. The largest swing in lease rates was seen in the retail sector. They went from an average asking lease rate of $2.37 triple net to $2.09. Office lease rates went from $2.28 full-service gross at the end of the third quarter to $2.25 as the new year began.
Central and North County office space was the “shining star” of the fourth quarter as far as absorption, with more than 67,000 square feet. Companies such as loan modification companies and law firms took on new office space, while the majority of mortgage- and real estate-related space was put on the market in the previous quarters. This trend explains why office is the only sector with significant space,170,000 square feet,under construction at the start of 2009.
Retail saw negative absorption of 276,000 square feet and manufacturing and warehouse saw negative absorption of 93,000 square feet. These were some of the steepest increases in negative absorption seen in many years.
Despite all the bad economic news, Orange County’s fundamental strengths still remain with a talented labor pool, a great quality of life and fantastic infrastructure. Although the region is seeing tough times, it is still much better off than many other areas of the state and country and will make it through this storm.
Hill is a senior associate in the Anaheim office of CB Richard Ellis Group Inc.
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