Vacancy Declines, Absorption Rises, Lease Rates Flatten
Orange County’s office market had another quarter of strong activity with a renewed interest in cost-efficient space. The result: robust positive absorption for low-rise and class B buildings.
Tenants also have shown a continued interest by renting cheaper sublease space. Since the first quarter, sublease vacancy has dropped by about 600,000 square feet.
Vacancy
Countywide office vacancy fell in consecutive quarters for the first time since 2000, declining from 15.5% to 14.7% in the third quarter.
The amount of vacant sublease space, as a percentage of total vacant square feet, fell from 14.3% in the first quarter to slightly more than 11% in the third quarter. Many OC office tenants took advantage of below-market rates.
South and Central County reported the lowest and highest vacancy rates in the county at 11.6% and 16%, respectively.
Absorption
Lower rents and limited multitenant construction contributed to sustained positive absorption through the third quarter.
The John Wayne Airport area and South County posted the highest absorption this quarter at roughly 370,000 square feet each.
Class A buildings have been strong performers with more than 1.8 million square feet of vacancy captured during the first three quarters.
Lease Rates
Average asking rates remained relatively flat in the third quarter, though there were small fluctuations in different markets.
Absorption levels have responded well since the county average dropped last quarter below $2 per square foot for the first time since 1999.
The biggest adjustment to asking rates was in Central County, where lease rates dropped four cents to 71 cents per square foot.
The greater John Wayne Airport area was the most expensive to lease space at $2.07 per square foot.
Construction
Many proposed projects remained in the planning phase as developers continue to wait for higher lease rates and significant occupancy commitments before breaking ground. The slowdown in new construction allowed for some markets to tighten as activity picked up.
With the exception of three low-rise projects, most of the buildings under construction are set for completion by the end of the year. About 548,000 square feet of new rentable office space will be added to the market.
Analysis provided by CB Richard Ellis’ Information Management Department.
