The Orange County office market appears to have stabilized thanks to a trend of positive net absorption that continued in the second quarter.
High-rise offices have led the recent streak, which has now gone on for five straight quarters.
The low-rise segment is not far behind.
The low-rise segment includes about 55 million square feet of space, with most of it near the John Wayne Airport Area and in South Orange County.
Rents Relatively Low
Rents remain relatively low compared to pre-recession peaks, and incentives such as initial free rent and tenant improvements are helping draw tenants to low-rise buildings here. That has led to more long-term leases and brought the vacancy rate to 14.2% in the second quarter. That’s even with the prior period and down from 15.4% for the second quarter of last year.
South Orange County has the highest vacancy rate of any of the county’s submarkets, at 17%. That comes to about 3 million square feet of space.
The large amount of vacant space helps explain why average asking rates on office leases countywide continued to decline despite the healthy pace of overall activity in the second quarter.
It was the 14th quarter in a row with a decline in asking rates on office leases overall.
The rate of decline did slow down in the low-rise segment, which saw asking rates fall by one cent to $1.82 per square foot, suggesting the steep four-year-long fall-off is bottoming out.
Positive Indicator
Orange County’s unemployment rate also provides a positive indicator. It finished the second quarter at 9.2%, below state and national levels.
Corporate tenants remain wary about the employment picture and the overall economic outlook, but a growing number of them are committing to longer-term leases and planning for growth.
Morrow is a senior associate for the Newport Beach office of CB Richard Ellis.
