Activity in Orange County’s office sector decreased during the third quarter, especially in the low-rise category.
The low-rise office market recorded 32,498 square feet of negative net absorption, though year-to-date net absorption remains in the black, totaling 175,557 square feet.
Vacancy Rate
The drop in absorption pushed up the vacancy rate to 11.1% compared to 10.9% last quarter. Year-over-year, vacancy in low-rise office space was 2.8%, compared to the 12.1% in the third quarter of 2012.
The Greater Airport Area continued to hold the lowest vacancy rate among the submarkets, at 10.4%, but it experienced a 2% increase over the previous quarter.
Low-rise office buildings account for approximately 55%, or nearly 55.2 million square feet, of the county’s office space. There are 1,540 low-rise office buildings, compared to 124 high-rise and 173 midrise offices.
Average asking lease rates, after experiencing several quarters of steady decline, started to slowly tick upward.
The average asking rate for low-rise office space increased 2 cents from the previous quarter to $1.83 per square foot. It was 5 cents higher than the year-ago rate of $1.78 per square foot.
Lease rates have remained relatively flat due to the condition of the market, but as tenant demand increases, the rates are expected to increase with it.
Asking rates in the North Orange County submarket increased 5 cents from the previous quarter to $1.88 per square foot, while the asking rate in South Orange County increased to $1.92 per square foot, the highest rate of the five submarkets.
The Greater Airport Area also had a 5 cent increase in the asking rate, to $1.84 per square foot.
The Central Orange County submarket experienced a 2 cent drop to $1.55 per square foot from the previous quarter, the only submarket with a decrease.
The rising trend of creative-office space and the increase in tenant demand and activity will help boost overall market fundamentals for the county’s office market.
The outlook for the rest of the year remains positive because the fourth quarter is historically the strongest period.
Tom Abel is a first vice president at CBRE.
