The net absorption for the first quarter, as well as 2007, mark a dramatic change from the positive absorption and steadily rising rents of the years preceding 2007. Average asking rate for the county'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 rate has dropped four cents from the fourth quarter of last year.

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

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

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

Regardless of how the office market performs in the short term, the consensus has long been that Orange County's sound fundamentals will ultimately prevail. The region's strong local economy and high quality of life continue to make it a desirable location for business, Holdner points out in his latest report. "The growing influence of new industries such as high technology, biotechnology and healthcare should further diversify the local economy and help to rejuvenate the office market," he says.