IRVINE, CA-The Orange County office market continues to improve steadily in all submarkets. According to Blaine Annett and Colby Annett, co-managing partners of Stream Realty Partners, rental rates haven't increased by double-digit percentages, but the overall market is healthy.
In fact, Orange County tenants in institutional space—which is what the firm tracks—are expanding, the Annetts say. “Not only are a lot of entrepreneurial small tenants coming in, but tenants are expanding n their space. It's a healthy part of the market. Nobody's giving back space. Tenants with two years on their lease are looking to renew and expand.”
While it was once feared that creative space and increased densities would cause firms to decrease the amount of space needed, that didn't account for the amount of space they would need for parking, the Annetts add. “You can't just put double the amount of people in the same space because of the parking ratios. It's not like we have a mass transit system where people can take the train to work. There are some trends on the carpooling side, but for the most part people are driving to work.”
On the investment side of institutional office, as GlobeSt.com previously reported, many large office investment sales that took place at the end of last year in the county closed at the beginning of this year. “From a big trophy asset standpoint, we really don't see a whole lot of [institutional office buildings] that will come to market and trade throughout 2014,” say the Annetts. “A lot of these buildings have traded hands over the last five years.”
New construction is also expected to be slow, and the Annetts say that while investors are beginning to talk about building office buildings, there's still $18 million square feet of institutional office space available across the market, “so more of that needs to be absorbed before you'll see owners start to build new buildings. Along with that, we will see an increase in rental rates, but the rental rates don't justify replacement costs.”
However, small businesses are beginning to come back into the picture, and a lot of the availability in the market is decreasing, the Annetts say. Deals under 10,000 square feet are happening, which is a positive sign over the last six months.
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