By JUSTIN HILL
North and Central Orange County continued to post low vacancy rates and rising lease rates across most sectors during the fourth quarter.
Many real estate analysts have been predicting an overall slowdown, but the fourth-quarter results proved otherwise.
The tightest market in North and Central County was for manufacturing and warehouse space. With land in short supply in OC, residential developers are eyeing industrial sites as potential targets. That’s cut into the amount of manufacturing and warehouse space available for lease.
The average vacancy rate for manufacturing space dropped to an eye-opening 2.8% in North and Central OC at the end of last year.
This lack of supply helped inflate lease rates across North and Central OC by 34%. Manufacturing lease rates are up from 47 cents per square foot in the third quarter to 63 cents in the fourth quarter.
Research and development space also had an increase in average asking lease rates from the third to the fourth quarter. The increase was a modest 2.7%, growing from 72 cents per square foot to 74 cents in the fourth quarter.
Tenants looking for R & D; space may want to get it quick, because the sector was the only one to kick off 2006 without any new construction under way.
Retail space also was a hot item in the fourth quarter, with lease rates increasing to $2.09 per square foot, triple net, across North and Central OC.
Retail vacancy followed the trend in other space types, falling toward the end of 2005 to finish at slightly more than 3%.
There is more than 500,000 square feet of retail space under construction in North and Central OC. But most of that space already is fully leased so rates aren’t expected to drop early this year.
The region’s office vacancy rate hit a record low of 6% in the fourth quarter, with lease rates up to $1.84 per square foot.
With only 130,000 square feet of construction under way, vacancy could continue to post record lows in 2006.
Despite the tight market and increasing lease rates, tenants looking for space have been able to avoid paying high rents by finding some great deals on the sublease market.
Although North and Central OC don’t have the number of mortgage-related companies that the John Wayne Airport area does, there still is a fair share of them. Some have been putting space on the market for sublease at below market lease rates.
The key question as 2006 begins: Will vacancy rates continue to decline while lease rates increase across North and Central OC?
Many say the record numbers won’t last, but it’s hard to see any sign of a slowdown on the horizon given the results of the fourth quarter.
Hill is an associate at the Anaheim office of CB Richard Ellis Group Inc.
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