The office market continues to experience positive momentum, pushing toward a full recovery. Occupancy levels are steadily improving due to constant demand, moving the market to near prerecession conditions.
Rental rates for office space are finally ticking up after remaining stagnant for several quarters. The average asking lease rate increased 1% in the third quarter to $2.04 per square foot. That follows a 2.5% increase in the previous quarter and a 1% jump in the first. The trajectory is projected to continue well into 2015 as vacancy keeps dropping and job growth continues.
A total of 447,000 square feet of positive net absorption was recorded during the quarter, bringing the year-to-date total to 1.6 million square feet.
The majority of the positive net absorption occurred in the Central Orange County submarket and totaled approximately 267,000 square feet. That offset the negative absorption in the first half of the year, although year-to-date totals fell into the red with nearly 157,000 square feet of negative net absorption. The Greater Airport Area, the region’s largest office submarket, recorded 74,000 square feet of positive absorption, pushing it past 1.5 million square feet of positive net absorption for the year.
Sustained demand has pushed the overall vacancy rate below 12%. The rate has declined 5.6% since last year’s third quarter.
The Central Orange County submarket continued to hold the highest vacancy rate, although improved, ending the quarter at 15.3%. The South OC submarket had the lowest vacancy rate of the five submarkets, at 8.7%, a 2.2% drop from the second quarter.
Construction of new office space in the county has been minimal, with the majority being build-to-suit properties rather than speculative development. There are approximately 397,000 square feet of office space in the development phase, 20% of which is preleased to users. One property completed construction this quarter, the 109,000-square-foot building in Irvine that was preleased to Google for its new local headquarters.
Analysis provided by CBRE Research
