Office Rents Post Record Quarterly Jump

The average asking lease rate for the nearly 99 million sf of office space in the county now stands at $2.47 per sf per month, a new record. The $2.47 figure is an average for all classes of space, with class A asking rates at $2.69 and airport submarket space asking rates at $3.

The county's office market registered another strong quarter despite the substantial amount of sublease space that mortgage companies have dumped onto the market, a factor that has not produced the negative effects that some industry observers had feared. The direct vacancy rate declined to 7.88%, down 12% from the second quarter of last year.

One reason that the consolidation in the mortgage industry has had a relatively minimal impact is that "the sublease space has been coming onto the market a little bit at a time," Holdner tells GlobeSt.com. "Some people were afraid that a whole lot of it would hit the market at one time."

The total amount of vacant direct and sublease space combined edged upward slightly to 11.39% from last year's 11.15%. But Holdner says that figure reflects a healthy market in light of the sublease space from financial firms and the 3.9 million sf of office space under construction in the second quarter, almost 10 times the amount that was under construction at this time last year.

"We're finding that the sublease space is getting picked up quickly," Holdner says. "What it boils down to is jobs, and with all of the jobs we're creating, people need places to work."

Orange County has long enjoyed one of the lowest unemployment rates in the nation, Holdner notes. The county's unemployment rate was 3.2% for the second quarter, 0.4% lower than the previous quarter.

Holdner cites Chapman University figures showing that Orange County added 34,000 new payroll jobs in 2005 and is expected to add 26,000 more this year. That adds up to his forecast for office lease rates to grow 7% to 10% for the year.

The Voit research chief says that no single industry is responsible for the continued demand and the attendant run-up in office rental rates, which he sees as a good sign. "That means that the growth is diversified," he says.