The Orange County high-rise office market ended 2010 with three consecutive quarters of positive net absorption, indicating a move into the early stages of a recovery.
A number of factors are driving leasing, including the willingness of landlords to restructure leases for existing tenants, in some cases lowering rents in exchange for extended commitments. These “blend and extend” leases have helped maintain occupancy levels.
Steadily declining rents are offsetting the costs of relocating for many tenants who move up from class B and class C buildings to class A high-rises.
Rents continued a slow and steady decline throughout 2010, the latest in a three-year streak.
Most experts expect rents to continue to fall for the foreseeable future, although there are indications that the market is approaching its bottom.
Rents now are on par with the low-point of the previous market cycle in 2003.
Free Rent
Another hint at recovery is the continued trend of landlords offering free rent, free parking and other concessions at the beginning of leases, with healthy increases in future years.
It appears that landlords are looking to get ahead of the curve and ensure that future rents are in line with post-recovery rates and not dramatically under market.
Even with those signs of the market stabilizing, tenants should remain in the driver’s seat through 2011.
No commercial real estate recovery can be complete without a significant improvement in employment levels.
While a new survey from the Institute for Economic and Environmental Studies at California State University, Fullerton notes that businesses are more optimistic than they’ve been in three years—84% expect business activity to improve or stay the same in 2011—almost 60% said they don’t expect to make any hires this year.
Kenny is a First Vice President in the Anaheim office of CB Richard Ellis. Data and analysis provided by CB Richard Ellis’ Global Research & Consulting.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
