Real Estate Watch: South County
Mixed Messages in South County
By JEFFREY W. LERCH
Market conditions continue to send mixed messages in South Orange County.
Despite showing some signs of recovery, the South County office market is feeling the effects of aggressive competition among landlords for tenants.
Asking monthly rents slid nearly 10% during the fourth quarter to $2.09 full service, while the submarket vacancy rate improved a full percentage point, falling to 16.5%.
That came on the heels of nearly 200,000 square feet of net absorption.
Heavy competition for tenants in the Foothills and Irvine Spectrum has contributed greatly to the decline in rents, followed by a large amount of sublease space that totals more than 900,000 square feet (nearly 30% of total vacancy).
Tenants are expected to be the greatest beneficiaries of market conditions for the balance of the year.
But as sublease and vacancy inventories subside, landlord concessions such as free rent and tenant improvements will decline. And that will set the stage for rent stabilization near the end of the year and into 2004.
Landlord woes in the commercial lease market are in contrast to the strength of demand for small office buildings offered for sale.
Sale prices of small commercial office properties remain strong in the wake of lower interest rates and a wavering economy.
The strength of the commercial investment market is expected to continue through 2003 until interest rates post a large enough increase to cause buyers to become more diligent in their underwriting.
Lerch is a member of the Global Corporate Services group for CB Richard Ellis and is based in Newport Beach.
