The health of the housing market has gotten most of the press of late. But the Orange County office market continues to look strong.
The latest quarterly data from the Newport Beach office of Grubb & Ellis Co. puts OC’s office vacancy rate at 6.9%. That’s down from 7.8% six months ago and is 12% lower than a year earlier.
The average class A asking rent now is $2.84, up 13 cents from six months ago.
High-rise buildings have seen the biggest gains in rent of any office space, rising 10% or more in the past year.
Rents for less glamorous class B space are closer to $2.12, up six cents from two quarters ago.
“The market is holding up well,” said Kurt Strasmann, managing director for the OC operations of Grubb & Ellis. “There remains a lot of confidence in the office sector.”
A few issues are worth keeping an eye on.
There’s been about 520,000 square feet of net absorption of office space so far this year. It’s a solid rate, but it isn’t close to the more than 2 million square feet of space absorbed in each of the past two years.
This year’s decrease largely is due to the nearly 1 million square feet of space given back by slumping subprime mortgage companies.
“The velocity of the entire market is down a little,” Strasmann said. “Landlords are still getting good offers, but they aren’t getting multiple offers.”
Grubb & Ellis is predicting absorption to continue “at a normal pace” of 1 million to 1.5 million square feet of office space next year.
Office watchers also are debating what the addition of nearly 2 million square feet of high-rise space under construction will mean to rents.
Developers are betting on rising rents for the next 18 months and expect to charge around $3.50 per square foot for their new space.
Another view: Rents actually could see a slight drop, starting in 2008, Grubb & Ellis research analyst Anthony Tran said.
Much of the new high-rise space will be pre-leased by tenants leaving other space, opening large holes in older buildings, Tran said.
This could create some lively competition to fill older space, bringing down asking rents, he said.
Lennar Corp. Chief Investment Officer Emile Haddad said he’s confident about the projects his company has under way in Anaheim, Irvine and Tustin.
The Miami-based company, which has local operations in Aliso Viejo, has no intention to downsize the scope of projects, despite a slowing housing market, Haddad said earlier this month.
“When you embark on a long-term project, you have to filter out the noise in the market,” he said.
There’s been more noise than usual.
The median price of an Orange County home fell for a third straight month in September to $626,000, according to La Jolla-based DataQuick Information Systems, a unit of Canada’s MacDonald Dettwiler and Associates. The median price now is down 3.2% from June’s record $646,000.
“We’re going through some market corrections. But that doesn’t change the fundamentals of what we’re doing,” Haddad said.
Lennar has several billion dollars worth of investments in the works, and has begun development at Ana-heim’s Platinum Triangle and Irvine’s Central Park West. The company is further along with homebuilding at the Tustin Legacy project.
So far, buyer interest in those projects has been encouraging, Haddad said.
Lennar is seeing sales of about 12 homes per week at the first neighborhoods in the Villages of Columbus in Tustin, according to city officials.
More than 3,200 people have registered interest in Central Park West. The two condominium towers being built on the former industrial site have 20 sales reservations.
In Anaheim, the company’s A-Town project has doubled the number of people on its interest list since June, when the market “started getting weird,” Haddad said.
“In today’s world, this (interest level) is good news,” he said.
New BIA President
Tim McSunas, senior vice president of land acquisitions for Shopoff Group, an Irvine-based developer, has been named the 2007 president of the OC chapter of the Building Industry Association. He replaces Tom Grable of William Lyon Homes Inc.
McSunas joined the local BIA in 1996 and became a member of its board in 2001. Currently, he serves on the board for the BIA Southern California and is a trustee of its political action committee.
BIA’s OC chapter represents more than 900 companies linked to homebuilding.
