Some large blocks of space recently hit the North and Central Orange County office markets, but the markets are still on the road to recovery.
Strong tenant demand for amenity-rich office space continued in the first quarter, and tenants have been willing to pay higher rents and in some cases compete for space with other tenants to be in the best buildings.
The North and Central Orange County office markets took a big hit in vacancy and absorption during the first quarter. There was 496,857 square feet of negative absorption, and vacancy rates increased to 14.4%, but that was largely fueled by three large spaces becoming available in Anaheim: Fisker Automotive’s 155,000-square-foot corporate headquarters, the 81,000-square-foot Yellow Pages building, and AT&T’s 200,000 square feet of space. The three deals are larger blocks of space better suited to large tenants, so the effect on deals of less than 75,000 square feet has been minimal.
Average asking lease rates increased 1 cent in the first quarter to $1.91 per square foot, full-service gross, but that number is quickly moving up as quality space is absorbed in the market. Many large commercial real estate research groups like CBRE Econometric Advisors have Orange County pegged as one of the most undervalued commercial real estate markets in the country and expect a significant increase in rates and a decrease in vacancy over the next 18 to 24 months.
Many corporate tenants view Orange County office space as a bargain compared to markets such as Los Angeles, San Diego and San Francisco.
Central and North OC continue to have tenant demand for office space due to their close proximity to a large labor pool, freeway accessibility, public transportation, and quality office product, all of which allow the submarkets to recruit employees from all over Southern California while still having a safe and stable environment for their employees.
Hill is a vice president at CBRE.
