NEWPORT BEACH, CA—Dirt is beginning to move in the Orange County office market, according to a fourth-quarter report from Voit Real Estate Services. Jerry Holdner, VP of market research for the firm, says there was an increase in office construction during the quarter in the county, which should continue to increase moving into the new year.

Total office space under construction came in at just over 540,000 square feet for the fourth quarter, with the most notable project delivered last year being the 354,541-square-foot Irvine Co. project 520 Newport Center at Fashion Island in Newport Beach. “We should see an increase in construction in the coming quarters, as typically the cranes come out when vacancy dips below 12%,” says Holdner.

As 2014 came to a close, vacancy was down 86 basis points from the previous quarter and unoccupied direct/sublease space finished the year at 11.78%, a decrease from the previous year's rate of 12.58% and significantly down from both the recession peak of nearly 18% in the third quarter of 2010 and the market high of 23% recorded in 1990, according to Voit. As the recovery continues, Holdner notes that research-oriented businesses such as IT, defense, medical and alternative energy will lead the charge of positive office absorption in the Orange County market.

The market as a whole continued to improve in 2014, posting more than 2.1 million square feet of positive net absorption for the year, the firm reports. The fourth quarter marked the third consecutive quarter of positive net absorption and the seventh consecutive quarter of rising lease rates. The market has posted a total of almost 5 million square feet of positive absorption since 2012.

The average asking full-service gross lease rate finished the fourth quarter at $2.08, an increase of 15 cents from 2013's average asking rate, which Holdner says “is great news for the Orange County market overall. 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 GlobeSt.com reported in November, with a few build-to-suits recently delivered and more nearing completion, Orange County developers are turning their attention to speculative office development like 520 Newport Center, according to Voit. The tower will achieve rents that indicate the viability of spec construction elsewhere in the county. Several projects are being discussed: Blizzard Entertainment, Broadcom, Vizio, Google and Toshiba are reportedly considering build-to-suit options, says Voit.

Stay tuned for a wrap-up of Voit's industrial-market fundamentals for 2014 and predictions for the coming year in that sector.