The Orange County office market started out this year with 750,000 square feet of positive net absorption, a gain from the prior quarter and the latest in a streak of quarterly gains that goes back to mid-2010.
Technology firms and medical companies are the driving forces behind the positive net absorption in the first quarter. The technology firms are absorbing more of the new creative-office space coming onto the market. Law firms, mortgage companies and small entrepreneurial companies also are starting to sign more leases in the county.
Lease rates have lagged, despite the pickup in activity, although certain submarkets are seeing rents slowly increase. Rents in the Irvine Spectrum are as much as $1 per square foot higher than other submarkets. Areas with creative-office space also are doing well due to increasing demand.
Overall asking lease rates have stayed relatively flat since the end of 2010. The first quarter recorded an average asking lease rate of $1.91 per square foot, a drop of only 1 cent per square foot compared to the fourth quarter.
Vacancies
The overall vacancy rate has been on a downward trend since the beginning of 2010. The first quarter ended with a 12.3% vacancy rate, down from 13.1% in the fourth quarter.
The South Orange County submarket recorded the lowest vacancy rate, ending the quarter at 9.8%. Vacancy in the Greater Airport Area experienced the greatest decline on a quarterly basis, dropping to 12.7% from 13.6% in the fourth quarter.
A couple of notable deals helped contribute to the vacancies decline, including an 83,986-square-foot lease CashCall signed in Anaheim and a 40,470-square-foot lease that Stearns Lending signed in Costa Mesa.
CBRE Econometric Advisors projects vacancy rates to rise to 14.1% by the end of the year. That’s based on plans by various companies to downsize or vacate space, as well as four build-to-suit projects totaling 1.1 million square feet that are under construction and will soon add to the inventory of office space countywide. Construction is still under way for Pacific Dental Services’ 139,386-square-foot headquarters in Irvine. Hyundai Motors is building its 469,000-square-foot facility in Fountain Valley, while construction continues on Pimco’s new 380,000-square-foot headquarters in Newport Center. A 107,000-square-foot, build-to-suit for Carpenters Union Training facility in Buena Park broke ground in October and is expected to be completed midyear.
Analysis provided by CBRE Research.
