By CHIP WRIGHT and ZACH ZANOLLI
Accounting for roughly 17% of Orange County’s industrial base, the research and development sector encompasses more than 1,000 buildings totaling 41 million square feet of space.
Despite fears of a weakening economy and negative net absorption in the office market, the research and development sector remained fairly stable throughout 2007.
In the fourth quarter, the research and development sector saw 432,789 square feet of activity that was concentrated exclusively in the airport area and South Orange County submarkets.
Even with the strong gross absorption for the two submarkets, overall net absorption was a negative 31,197 square feet for the fourth quarter. The North and West Orange County submarkets primarily were responsible for the negative absorption, contributing 84,396 square feet and 32,839 square feet of negative absorption, respectively.
With about 1.1 million square feet of research and development space available, the overall vacancy rate saw an 8% increase during the fourth quarter. To illustrate, the vacancy rate increased to 2.7% from 2.5% at the end of the third quarter. This is still considered a tight market for available research and development space.
The South Orange County submarket continues to have the highest vacancy rate in the county at 6.4%, responsible for 764,579 square feet of empty space (representing 70% of all the vacant space in the county).
The average asking monthly lease rate for research and development space in OC is $1.03 and has steadily increased since the fourth quarter of 2006. The average asking lease rate is up 1 cent from the third quarter of 2007 and 8 cents since the fourth quarter of 2006.
The construction of research and development space is limited, with only 104,764 square feet of space under construction in OC. The lack of construction activity is due to the lack of affordable land to support building research and development space.
Overall, the research and development market should experience solid absorption during 2008 based upon companies with pent-up demand finally committing to take on additional space and a reasonable, but tight, supply of quality research and development buildings. In addition, as more net absorption occurs, upward pressure on asking rents should continue.
Wright is a senior vice president and Zanolli is a sales assistant in the Newport Beach office of CB Richard Ellis Group Inc.
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