The Orange County high-rise office market finished 2011 with strong absorption numbers and the end of a streak of 15 quarters of rental rate decreases.
By year’s end there was a noticeable flight-to-quality trend, as office tenants took advantage of the value available for high-rise office space compared to low- and midrise and campus office alternatives. High-rise buildings are generally located with more abundant on-site or nearby amenities, typically have higher-quality finishes and are usually classified as class A buildings.
Fourth-quarter OC net absorption in high-rise offices was 301,876 square feet, bringing the year-end total to 959,717 square feet. This is a significant turnaround compared to 2010 absorption for high-rise space in OC of negative 60,865 square feet.
The submarket of the airport/coastal area had the strongest net absorption of high-rise space, accounting for 75% of the total with 718,251 square feet, followed by Central Orange County with 124,810 square feet. The strong 2011 absorption had a significant impact on reducing the vacancy rate in high-rise space to 17.4%, compared to 21% last year.
The average asking lease rate was stable from the third quarter to the fourth quarter at $2.11 per square foot average for the county. This stability seems to indicate the bottoming-out of the rental rate declines that took place during the market downturn.
A notable high-rise trade that took place in December was 2050 Main St. in Irvine, which sold to an investor for more than $108 million, or about $345 per square foot. The pricing for this class A trophy high-rise office building is indicative of the strong demand for core-office product in premier locations that we saw throughout the Western U.S. in 2011.
The transaction represented the second trade of 2050 Main since 2009, when in the trough of the market decline, Bank of America sold the asset for about $56 million. Significant leasing was accomplished at the property after the 2009 sale, which contributed to the value increase, along with improving market conditions.
Chandler is senior vice president in the Newport Beach office of CBRE.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
