The North and Central Orange County office markets are on the road to recovery.
In 2013 they had some significant building sales and almost 300,000 square feet of positive absorption.
The second half of the year was less active than the first, but there’s an underlying sense of optimism in tenants and landlords alike.
Continued Improvement
The fourth-quarter numbers were less robust than the absorption rates at the peak of the market, but they showed signs of continued improvement and a healthy market that’s steadily rebounding. We should continue to see the market strengthen, with the lack of construction on the horizon and an increased demand for office space.
The North and Central OC office markets have been fortunate in that some of the prominent buildings that faced difficulties in releasing space were sold in the past few months, ridding the market of “zombie buildings” and creating healthier conditions for tenants and landlords.
Average asking lease rates increased 1 cent in the quarter to $1.83 per square foot, but that number is low in comparison to deals being done today. Most agree there is a recovery under way with the potential for a lease rate spike and a dip in vacancy rates in the very near future, barring any surprises in the market.
Many large “think tanks,” such as CBRE Econometric Advisors, have Orange County pegged as one of the most undervalued commercial real estate markets in the country and expect a significant rates increase and a decrease in vacancy over the next 18 to 24 months. We’re already seeing that, with the vacancy rates for the two markets close to 2% lower than just a year ago.
Lease Rates
Lease rates have increased, and landlord concessions have slowly been drying up in the airport area and South Orange County submarkets, so many tenants with the flexibility of being able to relocate are reconsidering Central and North OC for their businesses. Lease rates have remained relatively flat compared to the airport area and South Orange County. But that won’t last long with Central Orange County’s freeway accessibility, public transportation, quality office space, and its proximity to a large labor pool.
Hill is a vice president at CBRE.
