Although the “great recession” has technically ended by government standards, its effects are still evident in local markets, particularly in the Orange County office market.
The growth plans of many businesses are still on hold, resulting in a continued decline in demand for office space.
While the amount of vacant high-rise office space recorded was relatively flat in the fourth quarter, it continues to hold the highest vacancy level of the office building types.
The OC office market includes 125 high-rise buildings totaling nearly 27 million square feet. The overall vacancy rate currently stands at 21.1%, or about 5.7 million square feet. This includes both direct space, which excludes vacant sublease space, and vacant sublease space. The fourth quarter direct vacancy rate is 19%.
With 74 high-rise buildings totaling more than 17.5 million square feet, the greater airport area is the largest submarket in the county. Rising from the third quarter, this submarket holds an overall vacancy rate of 22.2%.
Of the 3.9 million square feet that is vacant, 87% is available directly by the landlord, thus producing a direct vacancy rate of 19.4%.
The high-rise office market saw a relatively flat 24,222 square feet of negative absorption in the fourth quarter, bringing the 2009 year-to-date total to 546,991 square feet of negative absorption.
Absorption
Central County was the greatest contributor of positive absorption this quarter with 85,092 square feet. The greatest amount of negative absorption was seen in the greater airport area submarket, which saw a negative 112,839 square feet.
The reduction of demand countywide has caused owners to continue to lower their asking rates and give greater concessions. The average lease rate for all of OC high-rise buildings is $2.45 per square foot, which is down 3 cents from the third quarter and 36 cents from a year earlier.
Among the submarkets, the most significant decline was in Central County, which dropped 7 cents in the fourth quarter to an average asking lease rate of $2.02 per square foot.
As with the other property segments of the county, it will take more time for the high-rise market to recover to a healthy vacancy rate. Although OC holds a strong fundamental market base, continued flat or negative absorption is projected for the near future. Once OC begins to see improvement in the unemployment rate through job creation, it will start to see positive space absorption again.
Chandler is a senior vice president at CB Richard Ellis Group Inc.
