The fourth quarter marked a turning point in the office market as the average lease rate increased for the first time since the beginning of the recession in 2007.
The average gained 1 cent to $1.92 per square foot overall. Class A properties led the way with a 4-cent increase to an average of $2.10. Class B saw a 1-cent bump to $1.78. Class C properties recorded the only decline, a dip of 4 cents, to $1.58 per square foot.
Eventful Q4
The office market managed its latest gains through an eventful fourth quarter that included a presidential election and much debate over the so-called “fiscal cliff.”
The office market appeared to weather the uncertainty well, as improved occupancy levels chipped away at the region’s overall vacancy rate, and healthy tenant demand resulted in 657,000 square feet of positive absorption in the fourth quarter. That brought the total for 2012 to 2 million square feet.
The vacancy rate fell more than half a percentage point to 13.1% during the fourth quarter.
The vacancy rate peaked at 18.1% in the first quarter of 2010.
South Orange County had the biggest drop for vacancies among various submarkets in the fourth quarter, falling to 9.9% from 11.3% the prior period. The Greater Airport Area’s vacancy rate fell to 13.6%, Central OC declined to 15.6%, and West OC dipped to 16.2%. North OC held steady with a vacancy rate of 11.6%.
Tightening
The tightening will likely continue this year since there was no construction of new speculative office buildings under way in the fourth quarter, although development of build-to-suit office space is occurring. Three build-to-suit buildings totaling more than 988,000 square feet remain under construction. All three are new headquarters for OC-based companies—Pacific Dental Services Inc., Hyundai Motor America Inc. and Pacific Investment Management Co.—and located in the Greater Airport Area submarket.
The market outlook for Orange County remains optimistic based on the steady gains on net absorption, lease rates, and projections of further employment growth in 2013.
—Analysis provided by CBRE Research.
