Activity in the Greater Airport Area slowed in the second quarter across all three commercial real estate sectors.
Net absorption in retail, office and industrial combined totaled just 65,792 square feet, a decrease of nearly 600,000 square feet from the first quarter. But the summer months are historically a slower time for commercial real estate, affecting overall market fundamentals.
The Greater Airport Area office market has a base of nearly 47 million square feet and is the largest office submarket in Orange County. It typically generates the most traffic from tenants due to its centralized location and makeup of high-end buildings.
The office market continues to hold strong tenant demand, but the numbers recorded in the second quarter demonstrated a big slowdown compared to activity generated in the first quarter. Net absorption in the office market totaled 37,956 square feet at the end of the quarter, bringing the year-to-date total to 441,575 square feet. The vacancy rate consequently increased from 12.7% in the first quarter to 12.9%. The average asking lease rate continued its upward trend, increasing 2 cents to stand at $1.99 per square foot.
The overall industrial market fundamentals in the Greater Airport Area remain healthy. Activity slowed in the second quarter, and the vacancy rate for the manufacturing and warehouse sector increased to 3%, while the vacancy rate in the research and development sector remained stagnant, at 4%. The overall net absorption totaled a little more than 11,000 square feet, bringing the year-to-date total to 305,000 square feet.
Overall asking lease rates in the industrial sector have been climbing. The research and development sector saw a 36% increase year-over-year in asking lease rates, ending the quarter at 93 cents per square foot. Average asking lease rates in the manufacturing and warehouse sector had a 5% increase year-over-year to stand at 63 cents per square foot.
The industrial submarket saw one of the most dramatic rent increases over the past 12 months and is expected to continue to trend upward through the rest of the year.
The retail market is slowly gaining traction, albeit slower than the office and industrial sectors. Net absorption in the Central Coast/Airport Area submarket ended the quarter with a positive 16,678 square feet. But the year-to-date total remains negative at 13,792 square feet.
The vacancy rate continues to slowly tick down, ending the quarter at 4.2%. Year-over-year, average asking lease rates have increased by more than 8%. The average asking lease rate at the end of the quarter increased to $3.34 per square foot.
Analysis provided by CBRE Research.
