Despite a year in which many office market specialists described leasing as improving but still generally weak, Orange County finished 2003 with net absorption of three million sf of office space, second only to the peak year of 2000, when the county absorbed 3.5 million sf of space, according to Jerry Holdner, Voit VP and research chief.

Holdner tells GlobeSt.com that the county finished 2003 with a flourish, absorbing nearly 1.2 million sf in the fourth quarter. That 1.2 million sf included more than 725,000 sf of absorption in the Central Orange County submarket (Anaheim, Orange, Santa Ana and Tustin), plus 280,000 sf in the Airport Area submarket (Irvine, Newport Beach, Costa Mesa and Corona Del Mar) and nearly 220,000 sf in the South Orange County market, which includes the Irvine Spectrum, Aliso Viejo, Lake Forest and nine other communities. The North County and West County submarkets both posted negative net absorption, 26,000 sf and 13,000 sf respectively. One of the projects that contributed significantly to the leasing in the Central submarket was the 385,000-sf Arena Corporate Center in Anaheim, which reached 100% occupancy in the fourth quarter.

Orange County's vacancy rate and space availability rate both improved in 2003, according to the Voit statistics, which show a direct vacancy rate of 12.4% and an availability rate of 15.7% for the county's 96.1 million sf of office space. The vacancy and availability numbers were down from 14% and 18.6% respectively at the end of last year. The amount of new construction under way was down too, only 300,000 sf, compared with double that amount at the end of last year. Developers have announced plans for six million sf of new office space in the county, but how much of that gets built is anyone's guess, Holdner tells GlobeSt.com, because the vacancy and availability rates are still relatively high. In general, developers like to see the vacancy rate at 10% or lower, without a heavy load of sublease space, before they begin speculative projects.

The improving market has yet to push rents higher, however, as average asking full service gross lease rates per month per sf in Orange County declined to $1.99 at the end of 2003, compared with last years fourth quarter rate of $2.07. Holdner expects that rather than rising, rents will remain flat this year, but with landlords offering fewer and lower rent concessions.