The net absorption for the first quarter, as well as 2007, marka dramatic change from the positive absorption and steadily risingrents of the years preceding 2007. Average asking rate for thecounty's 107 million sf of office space, at $2.73 per sf per month,remains 10 cents higher than it was a year ago, but the asking ratehas dropped four cents from the fourth quarter of last year.

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Holdner expects asking rates to level off for the short term,but landlords are already more willing to negotiate than they werea year or two ago, so it's likely that building owners will offermore concessions in the form of free rent, reduced parking fees,more generous tenant improvement allowances and relocation fees asthe year goes on.

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Overall activity has slowed too, with the total of leasing andsales at slightly more than two million sf for the first quarter ofthis year, compared with an average of about 2.5 million sf to 3.5million sf. The combination of negative absorption, reducedactivity and newly built space on the market has pushed thecounty's vacancy rate to 13.82% this quarter and its availabilityrate to 18.69%, compared with last year's first quarter low vacancyrate of 8.47% and availability of 12.35%. Holdner points out thatOrange County's 13.82% vacancy rate is a long way from the recordvacancy of 24% in 1988.

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Although the length and depth of the market's downturn aredifficult to predict, Holdner points to some signs that the numberscould start looking better toward the end of the year."Construction has slowed considerably since a year ago, and it willbe continuing to slow down as the year goes on, so the market iscorrecting itself," he says. The amount of new space underconstruction totaled 865,000 sf at the end of the first quarter,which is 81% lower than the amount that was under construction thissame time last year. It is estimated that a total of 1.5 million sfof new construction will be completed this year, half of which hasalready been delivered.

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Regardless of how the office market performs in the short term,the consensus has long been that Orange County's sound fundamentalswill ultimately prevail. The region's strong local economy and highquality of life continue to make it a desirable location forbusiness, Holdner points out in his latest report. "The growinginfluence of new industries such as high technology, biotechnologyand healthcare should further diversify the local economy and helpto rejuvenate the office market," he says.

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