The overall South Orange County commercial market continued on a trend of positive momentum, absorbing 188,000 square feet in the second quarter.
The biggest gain in absorption came in the industrial market sector, with about 250,000 square feet of positive net absorption. But the office sector had a negative net absorption of 43,000 square feet, and the retail sector a negative net absorption of 28,000 square feet. Overall vacancy rates for office and retail, though, stayed about the same.
Office Market
The office market had a quarterly net loss in absorption of 43,000 square feet, but the overall absorption for the year totals a positive 10,000 square feet. Vacancy rates stayed about the same, at 9.8%, but down almost 20% from a year ago, when the rate was 12.2%.
The South Orange County office-user demand remains strong, especially for small buildings for sale. There’s still a high demand for office space in the Irvine Spectrum, with the high-rise office buildings at approximately 95% occupancy. There’s also been a substantial increase in average sale prices throughout South Orange County, with prices for small buildings up significantly year-over-year. Average asking rents have increased from the first quarter’s rate of $1.93 per square foot to $1.97.
Industrial
The industrial market was the submarket’s strongest sector. The overall absorption in manufacturing and warehouse space was 80,000 square feet, and in research and development, the absorption was approximately 179,000 square feet. Between the two sectors, there was an overall quarterly net absorption of more than 250,000 square feet.
There was also a large increase in asking sale prices, from $151.81 per square foot in the second quarter of 2012 to $176.33 per square foot in the recently ended quarter, an increase of 16% year-over-year.
The vacancy rate continued to drop, and overall asking lease rates climbed. Year-over-year, vacancy in the manufacturing and warehouse sector dropped from 3.8% to 2.8%. The vacancy rate in the research and development sector declined from 8.7% a year earlier to stand at 7.1%.
The overall asking lease rate for industrial space in South Orange County was 84 cents per square foot, a 7.7% increase from the second quarter of 2012.
Overall market fundamentals for the retail market have stabilized. But activity slowed in the second quarter, with 27,780 square feet of negative net absorption.
The vacancy rate rose to 5% from the 4.8% recorded at the end of 2012. The overall asking lease rate increased 3 cents per square foot from the previous quarter to $2.52 per square foot.
Bates is a first vice president at CBRE in Newport Beach.
