It's a Great Time to Be a Seller in OC

ORANGE COUNTY, CA—As Orange County office lease rates rose for the second consecutive quarter, industrial asking sales prices are approaching record levels, GlobeSt.com has learned exclusively from Voit Real Estate Services' VP of market research Jerry Holdner. The region is an example of a market truly benefiting from the economic recovery.

According to Voit, the office market here posted almost 140,000 square feet of positive net absorption for the quarter. The first quarter of 2015 marked the fourth consecutive quarter of positive net absorption and the eight consecutive quarter of rising lease rates. The average asking full-service gross lease rate finished the first quarter at $2.12, an increase of 16 cents or 8.2% form 2014's first-quarter average asking rate.

“This is great news for the Orange County market overall,” Holdner says. “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 a whole, the Orange County office market posted 137,850 square feet of positive absorption in the first quarter of the year, giving the market a net total of more than 8.5 million square feet of positive absorption since the third quarter of 2010, according to Voit.

One trend to note, according to Holdner, is the increase in office construction. Total space under construction came in at just above 540,000 square feet for the first quarter. “We should see an increase in construction in the coming quarters, since typically the cranes come out when vacancy dips below 12%, and vacancy is currently 11.44%.”

As the first quarter of 2015 came to an end, office vacancy was down 14 basis points from the previous quarter, and direct/sublease space (unoccupied) finished the quarter at 11.44%, a decrease from the previous year's rate of 13.06% 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. As the recovery continues, Holdner notes that research-oriented businesses such as IT, medical and alternative energy will lead the charge of positive absorption in the Orange County office market.

On the industrial side, the sector took significant strides toward continued improvement in the first quarter with a significant asking sale-price increase, Voit reports. The average asking sales price in the first quarter was $179.75 per square foot, $3.49 higher than the previous quarter and up 21.82% when compared to 2014's first-quarter rate. The record-high asking price of $181.23 was established in the third quarter of 2007.

“Overall in the Orange County industrial market over the last three years, vacancy has reduced more than 18.5%, while availability has decreased a jaw-dropping 33%,” says Holdner. “The substantial decreases in vacancy and availability are contributing to the gains in sale prices and asking lease rates. Currently, only around 1% of the inventory in the Orange County industrial market is available for sale. This lack of supply will continue to place upward pressure on pricing going forward.”

Holdner continues to be cautiously optimistic about the region going forward. “We continue to see improvement in both the office and industrial markets, and we anticipate positive gains moving forward, provided job creation continues and consumer confidence stabilizes. All in all, it's a great time to be a seller.”

According to CBC Worldwide's Blue Book, unemployment is 2.7% in the Orange County MSA, and investment cap rates remain low in the coastal areas. Market highlights include Irvine Co.'s a 425,000-square-foot spec office tower under construction in the Irvine Spectrum, and Angel Stadium's 825-acre Platinum Triangle is getting ready for its second phase of development.