IRVINE, CA-Renewed optimism has hit the Orange County office market as lease rates rise for the first time since 2007 and vacancy rates reduce to 12.5%. Jerry Holdner, VP of market research for Voit Real Estate Services Inc., tells GlobeSt.com that once that number hits 12%—some time next year, he predicts—we'll begin to see new-development projects rise from the dirt.
“Six quarters ago, concessions began to lighten, and rates looked like they were beginning to increase—and they are,” says Holdner. “We're now at 12.5% vacancy, which is better than the 18% we were at during the depths of the recession. A lot of guys are smiling that weren't smiling a few years ago.”
According to Voit, office lease rates in the county rose from $1.88 to $1.89 in the second quarter of the year, and the firm forecasts that these rates will continue to increase in 2013. In addition to the rise in lease rates, the market also posted more than 730,000 square feet of positive net absorption during the quarter.
“This is good news for the Orange County market overall,” said Holdner in a prepared statement. “The rise in rates, while modest, demonstrates a bottom in the downward trend of asking lease rates, which further supports the recovery we've been forecasting for the past 12 to 24 months.”
Holdner added that the gradual rise of rates, along with the slowing of concessions for the past two years, “will begin to push net operating incomes and property values higher. As a result, we anticipate an overall increase in investment activity in the coming quarters.”
Voit also reports that the demand for class-A office product has returned, bucking the first-quarter trend of all office absorption occurring in class-B buildings. “In the second quarter, 470,000 square feet of positive absorption was in class-A space, while only 250,000 square feet was class B,” said Holdner. “The return to class A demonstrates ongoing confidence in the office market, which will continue to fuel market recovery.”
As GlobeSt.com reported in May, after the recession all but halted office construction, the sector is showing signs of life in Orange County. According to a report from Voit, the recovery is being fueled by pent-up office demand, which continues to grow as the economy rebounds and the region adds jobs.
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