IRVINE, CA-Newly constructed office buildings are coming online completely pre-leased, according to a recent Marcus & Millichap report. The new stock is having little upward pressure on vacancy rates, prompting the question of whether or not a surge in office construction is in the cards for Orange County in the near future.
“I would say no,” Alan Pontius, SVP, managing director of M&M’s national office and industrial property group, tells GlobeSt.com. “We’ve seen that markets across the country—and certainly Orange County would fit in with what’s happening with the rest of the country—are having pretty muted office-construction levels. Despite the fact that we’re seeing a significant jump in construction from where we were in prior years, it’s still not significant against the inventory. There’s still not a tremendous amount of new supply. I don’t think you’re going to see any significant change in speculative office development. I don’t think that this bodes for the future a significant introduction of new spec stock.”
Builders will bring 1.2 million square feet of office space online this year, lifting stock 0.8%, according to M&M’s report. Last year, 210,000 square feet was completed.
Office-using employment will advance 2.8% in 2013, since 11,000 jobs were added, and this year vacancy is expected to fall 16.5%, down 160 basis points from year-end 2012, the firm reports. Class-A vacancy is expected to dip below the 20% threshold for the first time since the third quarter of 2007.
In addition, as office conditions in Orange County continue to tighten this year, operators will lift asking rents 2.7% to an average of $22.66 per square foot, M&M forecasts. Despite the turnaround in operations, asking rents will finish the year 27% below the previous peak.
Conversion to office from industrial use is another trend in Orange County office development. As GlobeSt.com reported last week, Zach Niles, SVP industrial real estate advisory and brokerage operations for Jones Lang LaSalle, told GlobeSt.com that when industrial buildings become functionally obsolete, as many older industrial buildings have, they become land value again and can be redeveloped into higher and better uses including residential, office and retail.