Orange County is the 15th largest office market in the U.S. and faces unique challenges many markets do not.
Due to the abundance of office space within the county and its corresponding high asking prices, many businesses are forced to make difficult decisions about their space to cope with the trying economic times.
Since it appears more companies will continue to shed space rather than pick up more square feet, OC will continue to struggle through these times with high office vacancy for the foreseeable future.
OC’s office vacancy rate increased in the fourth quarter to a year-end high of 18%. Total availability of office space also increased to its year-end high of 24.4%, up from 22.5% at the start of 2009.
Direct and sublease vacancy, along with availability, rose in the fourth quarter in all submarkets.
Many companies have elected to consolidate or downsize their offices, accounting for more than 3.6 million square feet of sublease space on the market.
Since the beginning of 2009, average monthly asking lease rates have declined 23 cents from $2.42 per square foot to $2.19 per square foot at the end of the fourth quarter.
Torto Wheaton Research, an arm of CB Richard Ellis Group Inc., has forecast average asking rents in the county will continue to decline into 2011. These rental rate adjustments and high vacancy statistics are directly correlated to the negative absorption number, which was close to 2.4 million square feet in 2009.
Building construction continues to be the hardest hit segment of commercial real estate.
With many buildings being put on indefinite hiatus, only one office project completed the construction phase in the fourth quarter, totaling about 82,000 square feet. This recent completion leaves the 2010 pipeline with no new office space under construction.
Unemployment rates within the U.S. and California continue to rise. The national unemployment rate has ticked upward since the first quarter from 8.1% to a year-end figure of 10%. California also saw a small increase in unemployment during the fourth quarter to close the year at 12.3%.
OC bucked the trend of the nation and state with a decrease in unemployment. It went from 9.6% in the third quarter to 9.4% in the fourth quarter.
OC lost 53,000 jobs, or 3.6% of its total non-farm workforce, from the fourth quarter of 2008 until the fourth quarter of 2009.
The biggest loss was in the trade, transportation and utilities sector, which posted a loss of 12,600 jobs.
The second biggest decline in jobs came from the construction sector, which 11,700 jobs in 2009. Ten of the 11 industries posted losses in the past year. Mining and logging was the only sector that didn’t decline, instead remaining unchanged, according to the California Employ-ment Development Department.
The job losses were a big contributor to the high vacancy and availability rates.
North County’s vacancy rate was 14.9%, up from 13.4% in the third quarter. This was the county’s largest submarket increase in vacancy.
Central County’s vacancy rose from 17.3% to 18%. West County’s vacancy rose to 9.9% from 9.4%. The greater airport area vacancy ticked up to 19.5% from 18.8%. South County’s vacancy rose from 16.8% to 17.9%.
Over the course of the fourth quarter, OC saw 757,503 square feet of negative absorption. All submarkets posted negative absorption. The majority of the absorption can be attributed to the greater airport area, South County and North County, together totaling 681,993 square feet.
The greater airport area and South County’s fourth-quarter negative absorption figures were a combination of many vacancies associated with the county’s struggling economy, including those of American Home Mortgage Servicing Inc. and Option One Mortgage Corp.
North County’s negative absorption can be attributed to AT&T Inc.’s wireless arm vacating approximately 156,000 square feet in Anaheim Hills and moving its operations to Texas.
Data and analysis by CB Richard Ellis.
