Activity in the low-rise office sector continued its positive momentum in the third quarter, generating 145,774 square feet of positive net absorption.
That brought year-to-date net absorption to 308,328 square feet for 2014. The vacancy rate, with the increased amount of activity, dropped to 10.6% from 11.1% one year earlier.
Airport Area, South OC
The Airport Area absorbed 41,926 square feet during the quarter. Centurion Plaza, a three-building office complex, recently signed more than 30,000 square feet of new lease transactions with XP Power, Fidelity and Humax Electronics.
The South Orange County submarket held the highest asking rate at $2.05 per square foot, mostly due to the Irvine Spectrum, where the average asking rates are more than $2.20.
The low-rise office sector in Orange County accounts for more than half—about 55.2 million square feet—of OC’s office space, with 1,541 buildings. There are 124 high-rise and 173 midrise buildings in the county.
The sector, specifically the Airport Area and South Orange County, has become popular with tenants looking for creative-office space. Many obsolete low-rise office buildings are a good option to renovate into such designs. The first and best example of a successful creative-office transformation in the county is the six-building WorkScapes campus owned by Buchanan Street Partners.
Five years ago, the campus contained “commodity” space that competed on price to attract customers. It all started when a packaging company vacated a large portion of the project, leaving functionally obsolete space. The decision was made to go full creative, and spec creative suites were created.
The reception from architects, media, technology, public relations and design firms was overwhelming, so owners decided to convert all space that came available to creative offices. WorkScapes subsequently has evolved into one of the first true creative-office campuses in the county, with studios and lofts offering inspiring workplaces where an entrepreneur who chooses to wear shorts and sandals can feel at home. The transformation led to fast leasing of all the creative space.
Positive Outlook
The outlook for OC’s low-rise office market is positive. Market fundamentals should continue to be strengthened by job growth, increasing tenant demand, robust user demand, and growing interest in creative-office space.
Some of the existing low-rise inventory is not the “highest and best” use for its location. Multifamily developers have big appetites for land, and in some cases, older, functionally obsolete buildings will continue to be torn down to make way for new development.
Dillon is a first vice president and senior partner on the Dillon Katz Office Specialty Team at CBRE.
