IRVINE, CA—Encouraging leasing data is coming from Orange County’s class-B office market. Voit Real Estate Services reports to GlobeSt.com exclusively that class-B space had the greatest amount of positive absorption in the first quarter of 2014, racking up more than 260,000 square feet.
According to Jerry Holdner, VP of market research for the firm, “Companies continue to expand in Orange County, which is bringing ongoing stability to the market. Research-oriented businesses, including IT, defense, medical and alternative-energy companies are most likely to lead the charge of positive absorption over the next few years.”
The news is welcome after JLL‘s seemingly glum office-leasing report earlier this week, which showed that the majority of lease transactions completed in the first quarter of 2014 in the county came from in-place renewals as opposed to new deals and relocations, resulting in negative absorption of more than 377,000 square feet.
Regarding the apparent disparity between the two reports, Holdner tells GlobeSt.com, “The first quarter of the year is typically slow. Last year, we had a really good first quarter, but this first quarter was more consistent with a normal year. The good news is that there’s activity, and companies are still looking for space; if that wasn’t the case, there’d be cause for worry.”
According to Voit, the office market posted the fourth straight quarter of rising asking lease rates, increasing form the first quarter of 2013 rate of $1.88 on a full-service gross basis to $1.96. The quarter ended at just over 13% vacancy, significantly down from both the Great-Recession peak of nearly 18% in Q2 2010 and the market high of 23% recorded in 1990. Availability followed the same trend, ending the first quarter at 16.5%, a decrease of more than one full percentage point when compared to Q1 2013.
In addition to improving occupancy, the Orange County office market also demonstrated encouraging average asking lease-rate numbers, Voit reports. The average asking lease rate per month per square foot in the Orange County office market was $1.96 at the end of the first quarter, an increase of 4.6% since Q1 2013.
“Office rents are increasing, and concessions are decreasing,” says Holdner. “Both are strong indications that we reached a bottom in the downward trend of asking office lease rates in the first quarter of 2013. We anticipate that rates will continue to increase in the second half of 2014.”
In addition to the promising office data, Voit reports more encouraging news from Orange County’s industrial leasing sector. The market posted one of the lowest vacancy rates seen in more than five years, finishing the quarter at just under 4% and posting more than 529,000 square feet of positive net absorption during the quarter.
“Overall, the Orange County industrial market has posted over 7.2 million square feet of positive absorption since Q2 of 2010,” says Holdner. “We anticipate that net absorption will continue its positive trend in 2014.”
Both industrial vacancy and availability continued trending downward in Q1, and Holdner says the vacancy rate hasn’t been this low since the fourth quarter of 2008. The availability of direct/sublease space being marketed was also down, decreasing nearly 17% from 2013′s rate of 7.1%.
The average asking triple-net industrial lease rate rose one cent from the previous quarter to $.62 per square foot per month, four cents higher than in Q1 2013, and Holdner is forecasting that this rate will rise to $.65 per square foot per month by the end of this year.