IRVINE, CA—GlobeSt.com has learned exclusively that most of the positive absorption seen in the Orange County office market in Q2 was in class-A space—not class-B as was previously seen, according to Jerry Holdner, VP of market research for Voit Real Estate Services. The sector showed continued signs of recovery during the quarter, posting more than 740,000 square feet of positive net absorption, the most positive absorption seen there in one quarter since Q1 2007.
“As the quarter came to a close, totals show 586,000 square feet of positive absorption in class-A space and only 114,000 square feet in class B,” says Holdner. “The return to class A demonstrates ongoing confidence in the office market, which will continue to fuel market recovery.”
In addition, Q2 saw the fifth consecutive quarter of rising office lease rates, Voit reports. The average asking full-service gross lease rate finished the second quarter at $2 per square foot per month, an increase of 5.82% from 2013′s second-quarter average asking lease rate.
“This is good news for the Orange County market overall,” says Holdner. “The rise in lease rates demonstrates that the market continues to improve, which further supports the recovery we’ve been forecasting for the past 12 to 24 months.”
As a whole, the Orange County office market posted more than 6.5 million square feet of positive absorption since Q3 2010, 3.5 million of that in the last nine quarters, according to Voit. Another trend to note, says Holdner, is the continued decrease in the amount of vacant and available space in the county. “We should see an increase in construction in the coming quarters, as typically the cranes come out when vacancy dips below 12%. Vacancy currently resides at 12.69%.”
As the recovery continues, Holdner notes that research-oriented businesses such as IT, defense, medical and alternative energy will lead the charge for positive absorption in the Orange County office market.
On the industrial side, the market took major strides toward continued improvement in the second quarter with more than 1.1 million square feet of positive absorption for the year so far for the county, Voit reports. This is a 3-cent or 5% increase in asking lease rates and drops in both vacancy and availability compared to a year ago.
“Overall in the Orange County industrial market over the last two-and-a-half years, vacancy has decreased over 23%, while availability has decreased a jaw-dropping 29%,” says Holdner. “The substantial decreases in vacancy and availability are contributing to the gains in asking lease rates.”
Both vacancy and availability continued trending downward throughout 2014. Vacancy ended the second quarter at 3.77%, the lowest rate in more than five years and a drop just over 12% from 2013′s second quarter. Likewise, availability posted a rate of 6.07% at the close of the quarter, a substantial decrease of almost 17% from a year ago.
As lease rates rise, sale prices are also ticking up, says Holdner. He attributes this trend to the diminishing supply of industrial product for sale in Orange County, particularly in buildings smaller than 100,000 square feet.
“Currently, only around 2% of the inventory in the Orange County industrial market is available for sale, and a large portion of that space is functionally obsolete. This lack of supply will continue to place upward pressure on pricing going forward.”
Holdner continues to be cautiously optimistic about the Orange County market as a whole. “We continue to see improvement in both the office and industrial markets, and we anticipate positive gains moving forward, provided job creation continues and consumer confidence stabilizes.”