The Central and North Orange County office submarkets have traditionally trailed the Greater Airport Area and South Orange County office submarkets in terms of vacancy, average asking lease rates, and absorption of space. The start of 2015 was no different.
The good news is that Central and North Orange County office vacancies are trending lower, with the largest blocks of space becoming limited and no new construction on the horizon.
Several class-A office projects were able to attract large tenants looking to move up in quality and that successfully secured long-term leases at attractive rental rates. The submarkets as a result experienced a decline in vacancy rates and positive net absorption during the first quarter. In addition, as the demand for healthcare expands, we expect Central and North Orange County to benefit from continued growth in the industry for both traditional medical uses and administrative offices.
The Central Orange County office market comprises approximately 16,648,730 square feet in 284 buildings of over 30,000 square feet. The vacancy rate at the end of the quarter was 13%, down from the 16.1% rate recorded a year earlier. Absorption was positive at 161,973 square feet, a significant increase compared with negative 296,278 square feet in the first quarter of 2014. The average asking lease rate was $1.79 per square foot, a slight increase of 0.6% year-over-year.
The North Orange County Office market includes 8,587,756 square feet in 125 buildings over 30,000 square feet. Its overall vacancy rate dropped significantly from the first quarter of 2014, down 19.6% to 12.3%. The drop generated positive net absorption for the quarter totaling 131,785 square feet. The average asking lease rate remained stagnant from the fourth quarter at $1.94 per square foot but is an increase of 1.6% from the first quarter of 2014.
The Central and North Orange County office markets are showing steady growth this year. As Class-A rents tighten well over the $2 per square foot threshold and as quality space becomes scarce, eventually the pendulum will swing toward a landlord-driven market.
Analysis provided by CBRE Research
