"Basically, we're absorbing all of the space that the mortgage companies are leaving behind, but with all of the new construction coming on line, our vacancy rate is going up," Holdner says. The average asking full service gross lease rate per month per sf in the county ticked up to $2.77 in the quarter, but deals are being done with significant concessions that are reducing effective rates.

Landlords are offering concessions that haven't been seen in some time in the county, such as free rent and discounted parking, relocation funds and higher tenant improvement allowances. "I don't think asking rates will decline," Holdner says, explaining that with fundamentals sound in Orange County and the market performing well in spite of the challenges it faces, landlords will be reluctant to drop their quoted rates.

Holdner comments that the office market "is actually doing better than I thought it would" in light of the millions of square feet of new construction that have hit the market in the past couple of years, combined with the nationwide credit crunch and the space that is being vacated by mortgage companies and home builders. The office vacancy rate rose to 10.5% in the third quarter, an increase of 3% over last year's third quarter low rate of 7.49%.