The North and Central Orange County office markets are on the road to recovery and had a big jump in net absorption for the third quarter after a strong first half of the year.
The two markets were less active than in the first half of 2013 but absorbed a combined 83,745 square feet, close to double the amount of square footage absorbed in the second quarter.
Year-to-date, the markets have had a healthy year, with more than 356,900 square feet of positive net absorption. Those numbers are nowhere near the absorption rates seen at the peak of the markets but show signs of continued improvement, and with healthy markets that are steadily rebounding with no new construction on the horizon, the trend should continue.
The office markets were some of the hardest hit during the most recent downturn, due in large part to the high concentration of mortgage and mortgage-related companies that occupied space in the area, as well as tenants looking to take advantage of lease rates in the airport area.
Central Orange County, despite the positive absorption, continued to feel the effects of the mortgage-related companies shedding space.
CashCall is looking to sublease approximately 150,000 square feet of its space in Central Orange County and is rolling out of about 200,000 square feet of leased space that expires in 2015 in Anaheim near the Honda Center.
Many of the area’s largest and most prominent buildings have also faced difficulties in re-leasing office space as they deal with changes in ownership—many of them as a result of loan defaults and receiverships, but that has changed with the “zombie buildings” being recapitalized, creating a more competitive and healthy market with more options for tenants.
Most agree a recovery is taking place, assuming there are no surprises in the market, with the potential for lease rates to spike and vacancy-rate dip in the near future. Many large institutions 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.
That’s already happening, with the vacancy rates for the two markets close to 2% lower than just one year ago.
Lease rates have increased, and landlord concessions have dried up in the airport area, so many tenants are reconsidering Central and North Orange County.
Lease rates, despite the decrease in vacancy, remained relatively flat, at about $1.81 per square foot, per month on a full-service gross basis.
It’s still a tenant’s market, with aggressive deal terms available. For landlords, it’s safe to say the worst is over, and the tables will be turning in their favor soon.
Hill is a vice president at CBRE.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
