Orange County continues to be negatively affected by the shock of the nationwide recession. Increases in the unemployment rates within the county and state have played major roles in the commercial real estate landscape we face today. The second quarter has ridden on the coattails of the economic decline seen in the first quarter to new levels of office property vacancy not seen since 2001.
The unemployment level in OC has risen in the past year to an astounding 8.6%. The majority of these job losses has been a direct result of the struggling real estate and financial markets, along with the demise of office construction.
There is one bright spot on the horizon for the county in terms of job growth: education and health services jobs, which have seen growth year-to-date.
The county’s office vacancy has risen since the first quarter to 16.7% from 16.1%. Overall office availability has also risen from 22.4% in the first quarter to 23% in the second quarter.
All five submarkets saw increases in vacancy and availability this past quarter. North County and West County saw the biggest jumps. North County went from 12.5% to 13.9% and West County went from 8.9% to 9.6%.
Space Givebacks
Total absorption in the second quarter was a negative 597,440 square feet. The greater airport area had the largest amount of negative absorption with 336,924 square feet, which was mainly due to the closing of the Washington Mutual Inc. campus in Irvine.
The second largest giveback of space was in North County, which posted a negative 113,291 square feet of absorption that was mainly attributed to the vacant space that was occupied by Fremont General Corp.
Central County and West County also posted negative absorption. Central County posted negative 85,100 square feet of absorption and West County had negative 37,011 square feet of absorption. South County had the least amount of negative absorption in the second quarter with negative 25,114 square feet.
Every submarket has seen sharp drop-offs in average asking lease rates. Since the beginning of 2008, average lease rates have dropped from $2.72 per square foot to the second quarter’s rate of $2.33 per square foot.
Rents, according to Torto Wheaton Re-search, a research unit of CB Richard Ellis Group Inc., are forecasted to continue to decline well into 2010.
The monthly average asking lease rates for OC office space declined in the second quarter by 9 cents to $2.33, down from $2.42 per square foot in the first quarter. Class A office space lease rates shrunk from $2.68 in the first quarter to $2.56 per square foot.
Class B lease rates also declined to $2.11 from $2.18. Class C rates shrank the most, going from $2 to $1.81 per square foot.
The greater airport area saw the biggest drop in prices: a 12 cent decline from $2.60 to $2.48 per square foot. North County, Central County and South County all dropped by 8 cents: North County to $2.11 per square foot, Central County to $1.98 per square foot and South County to $2.37 per square foot. West County saw the smallest decline in rental rates; it saw a 2 cent drop to $2.11 per square foot.
Construction
Construction has been hardest hit. Only one project is currently under construction countywide, totaling slightly more than 81,000 square feet in Santa Ana. The class A office buildings is slated for an August completion.
That under-construction number has shrunk from 170,000 square feet of under-construction office space in the second quarter of last year.
Analysis provided by CB Richard Ellis Group Inc.
