ANAHEIM, CA-The average asking Orange County office rent climbed to a new record in the first quarter, as did the asking rate for industrial space in the county, according to the latest reports from Voit Commercial Brokerage. Voit research chief and VP Jerry Holdner tells GlobeSt.com that office rents are expected to continue rising this year despite the woes of the subprime lending industry, which has placed a substantial amount of office sublease space on the market.

The average asking office rent rose to $2.63 per sf per month full service gross in the first quarter, the 13th consecutive quarter in which the rate has climbed and reached new records. The industrial rate hit 75 cents per sf per month, triple-net, a new record.

Holdner foresees the office lease rate rising by 5% to 10% this year, in part because the new space that is under construction in the county is commanding higher rates. About 4.6 million sf of new office space is under way in Orange County.

Although the subprime lenders have dumped enough space onto the market to help push the availability rate up to about 12.35%, Holdner points out that the direct vacancy rate is still only 8.49% and that demand for office space remains strong. He notes that about half of the 4.6 million sf that is under construction is either build-to-suit or preleased space.

Holdner estimates that the subprime industry leases between 1.5 million sf and two million sf of the county's 101 million sf of office space. How the problems of that industry ultimately affect the office market will depend on how much of the subprime space is made available for sublease and how long it takes to be absorbed.

Orange County absorbed about 500,000 sf of office space last year after absorbing three million sf per year for each of the three previous years. During the first quarter, the county posted negative absorption of 65,700 sf, but Holdner is optimistic that the trend will turn positive again as the year goes on.

On the industrial side, the rising rates reflect a continued demand for space and a dearth of land for new development. Orange County has only 1.1 million sf of new space under construction on a base of 222 million sf, 25% less space that was under way a year ago.

Industrial vacancy declined to 3.78% in the quarter, down from a year ago, which Holdner says "will put more pressure on lease rates to continue to climb during 2007." Total industrial availability declined to 5.04%, also down on a year-to-year basis and approaching the all-time record low for available space in Orange County, which was set last quarter when it was 4.72%.