By SIMON DILLON
The South Orange County office market is posting sub-10% vacancy rates for the first time in five years.
As expected, the area’s office market has followed slightly behind the John Wayne Airport area’s rebound.
Mission Heritage is an example of the improving market. The 70,000-square-foot office building in Mission Viejo, owned by McMorgan & Co., had sub-70% occupancy levels just a few years ago.
Today, Mission Heritage only has one remaining vacant space of about 2,500 square feet.
Rental rates at Mission Heritage have risen from a low of $1.90 per square foot two years ago to $2.15 per square foot today. Strong leasing has spurred the rate gain.
Overall, South County office vacancy rates fell 21.3% to 9.8% in the first quarter, versus a year earlier.
Rental rates are reacting to low vacancy rates with steady gains. South County office lease rates were up 4% to $2.12 per square foot in the first quarter, versus a year earlier.
The vacancy and lease rate trends are expected to pick up speed.
The South County office market recovery lags the John Wayne Airport area rebound by about six months. That isn’t surprising since South County added more entry-level office space during the technology boom.
South County posted 396,103 square feet of positive absorption in the first quarter.
Higher sale prices are a product of improved occupancy, higher rental rates and positive absorption.
One office building recently was bought for more than $50 million, or $220 per square foot to $230 per square foot. There were plenty of interested buyers at this level.
With South County’s large, skilled and diverse labor pool, new roads, schools and homes, and an attractive climate, the area’s office market is expected to continue to improve.
Dillon is a vice president in the Newport Beach office of CB Richard Ellis Group Inc.
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