By NICK SPATAFORE
The Orange County research and development market faces a slowdown in demand and an increase in availability as it continues to feel the ripple effect of the volatile economy.
Research and development is similar to the local office and manufacturing and warehouse markets, which have seen dramatic increases in their vacancy and availability rates in the past year.
OC’s research and development sector totals slightly more than 1,000 buildings and accounts for about 42 million square feet of space, or 17% of the county’s total industrial market. With nearly 1.5 million square feet of vacant research and development space, the airport area and South County contain 68% of the county’s vacant research and development space.
West County accounts for roughly 23% and North County claims 9%.
The research and development vacancy rate, which decreased in the third quarter, spiked back up from 3.1% to 3.5% in the fourth quarter. In conjunction, the availability rate continued to increase, rising from 7.9% to 8.7%.
These increases can be attributed to the fourth quarter seeing only 271,426 square feet of activity,its lowest point in more than four years,combined with the four straight quarters of negative absorption. For the fourth quarter, the research and development market saw 180,178 square feet of negative absorption.
Stable Areas
Despite these declining trends, the research and development market’s asking lease rates have remained stable throughout the year, increasing by 4 cents per square foot since the fourth quarter of 2007.
There were 10 deals completed in the fourth quarter, down from the 14 in the third quarter and 14 in the fourth quarter of 2007.
As is the norm, smaller to midsize users (less than 50,000 square feet) represented the majority of the transactions. These small to midsize users accounted for 90% of the square footage absorbed in the fourth quarter, an increase from the 86% seen a year earlier.
As the first quarter comes to a close, we expect some trends to continue. Absorption should remain slow while companies analyze their future real estate needs.
The market in general has already seen a steady increase in supply from 2008 with the addition of several quality research and development buildings hitting the market.
These trends have created a good opportunity for companies seeking to reduce their costs by relocating to more efficient or better quality facilities.
Spatafore is a senior associate in the Newport Beach office of CB Richard Ellis.
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