The U.S. economy continues to face challenges brought on by the fallout of the subprime mortgage and housing industries implosion. California and Orange County are no different and both faced similar issues during the first quarter.
Predictions from Torto Wheaton Research, a research arm of CB Richard Ellis Group Inc., for the county are grim. The most recent OC office report forecasts negative growth of office workers through the fourth quarter of 2010, while absorption is expected to continue in the negative
numbers.
OC’s employment continues to be under stress. While the county added jobs in March versus February, unemployment continued to climb as yearly job losses remained at a level not seen since the 1990s recession. The county’s unemployment rate was 8.5% in March, up from a revised 8% for February and 4.5% a year earlier.
The office vacancy rate for OC rose in the first quarter from 15.5% to 16.1% for all classes of office buildings. The overall availability rate also increased, rising to 22.4% from 21.4% recorded in the fourth quarter. The uptick in vacancy can be directly linked to the negative 476,805 square feet of absorption. Sublease space also saw a rise in availability in the first quarter, going from 3.1 million square feet to 3.4 million square feet or 15% of the total available space in the OC market.
The increasing vacancy and availability rates also have had an adverse effect on countywide average asking rents. Since the first quarter of 2008, average asking rents for all buildings have declined 30 cents to finish the first quarter at $2.42. According to Torto Wheaton Research, rents are predicted to continue to decline until the end of 2010.
In the first quarter, the local office market saw 476,805 square feet of negative absorption. The majority of this negative absorption was concentrated in the greater airport area, which posted negative 494,970 square feet. Both Central and West County partly offset the airport area’s absorption: Central County posted 73,435 square feet of absorption and West County posted 26,501 square feet of absorption.
One of the largest deals that took place in the first quarter was the South County sale of an 115,000-square-foot office building at 16355 Laguna Canyon Road to Chapman University.
The OC office market saw an increase in vacancy during the first quarter. Overall vacancy went up from 15.5% in the fourth quarter to 16.1%. Three of the five submarkets saw an increase in vacancy for the quarter. The greatest increase occurred in the greater airport area submarket, where the vacancy level was up from 16.5% in the fourth quarter to 17.5%. North County saw a vacancy increase from 12.1% to 12.5%, while South County recorded a modest rise from 15.1% to 15.3%. West County saw a decline in vacancy from 9.4% to 8.9%. Central County’s vacancy rate remained unchanged at 16.9%.
In the first quarter, a significant decrease in both completed and under construction office buildings occurred. Central County added a 90,000-square-foot building to its office space, which came in the form of the completion of the new Anaheim facility for Carl Karcher Enterprises Inc., part of CKE Restaurants Inc. One additional 80,533-square-foot class A building in Santa Ana remains in the construction phase and is due to be completed later this year. The change in economic conditions has led to development plans of several office buildings to be put on hold until market demand shows signs of improvement.
Data and analysis by CB Richard Ellis.
