The Orange County office market, building on an already-successful 2014, is gaining momentum through the turn of the year.
Average asking rates are increasing by less than 10% annually in all geographic submarkets, a pace that’s generally considered sustainable.
Class A properties were asking $2.24 per square foot on average, followed by Class B was at $1.93 per square foot, and Class C at $1.61 per square foot. Rates are projected to increase an additional 5.9% this year.
Overall market vacancy, now at 11.1%, was down 5.1% and 11.2% year-over-year. All submarkets showed vacancy decreases, with Central Orange County declining the most for the second consecutive quarter. South Orange County had an 8% vacancy rate, and Central Orange County had the highest vacancy rate, or 14%.
Low-rise buildings, which account for almost 55% of the county’s office square footage, have historically had the lowest vacancy rates. Last quarter, midrise buildings became the least vacant and are now 90.4% leased.
The overall positive net absorption in the fourth quarter came mainly in the Greater Airport Area, and in a few specific deals.
Three of the top five deals of the quarter all closed at the Park Place office park in the submarket, with St. Joseph Health System taking 191,556 square feet, Ingram Micro signing for 178,000 square feet, and State Farm Insurance expanding to 156,352 square feet.
Marketwide, office property sales were the highest since 2007. 2014’s office sales volume, according to Real Capital Analytics, increased nearly 30% over 2013. John Hancock purchased 17901 Von Karman Ave. in Irvine from LBA Realty for approximately $112 million.
The acquisition of the 272,887-square-foot LEED gold certified Class A property, which houses Oracle Corp. and Pacific Premier Bank, among other tenants, was the largest of the quarter. In December, Lexington Realty Trust sold the 637,500-square-foot Bank of America campus in Brea to Cerberus Capital Management, a New York-based firm working in conjunction with Irvine-based Greenlaw Partners.
New construction activity, even with most economic and industry indicators pointing north, remained relatively quiet. There are only two office properties currently in development other than the Irvine Company’s 200 Spectrum Center.
Analysis provided by CBRE Research
