NEWPORT BEACH, CA-In the fourth quarter of 2011, the Orange County office market displayed positive net absorption for the sixth consecutive quarter, posting 819,510 square feet—the most occupation of space since the first quarter of 2007. So says Voit Real Estate Services, which exclusively shared its Q4 numbers with GlobeSt.com.
According to the fourth quarter market report, activity volume reached its highest level since 2006, and both vacancy and availability decreased from the previous quarter. “In 2011, the Orange County office market posted a total of 2.55 million square feet of positive absorption, making this the longest trend of its kind since 2006,” explains Jerry Holdner, vice president of market research at Voit. “This steady growth indicates that the office market is continuing its recovery and we expect the market will continue to improve with anticipated job growth.”
Employment expansion will be led by professional services businesses, healthcare, and research-oriented businesses such as medical, IT and alternative-energy companies, Holdner says.
According to the report, in 2011, leasing activity checked in at 10.7 million square feet, a slight increase over 2010. Sales activity for 2011 also improved, with the market posting 2.6 million square feet of activity compared to 2010's 1.9 million square feet of sales transactions.
“We are beginning to see an overall increase in investment sales activity, and we foresee a continued increase in this activity in the coming quarters as lenders dispose of distressed assets without fear of fire-sale pricing,” Holdner explains. “We also anticipate an increase in leasing activity as many short-term deals come up for renewal.”
According to Voit, the increase in activity will begin to push lease rates up. The average asking full-service gross lease rate per month per square foot in the Orange County office market was $1.93 at the end of 2011, reflecting a 3% decrease from the previous year's rate of $1.99, but only a one-cent drop from the $1.94 rate seen in Q3 2011.
“While lease rates decreased year over year, it is important to note that the average asking lease rate dropped only one cent from the previous quarter, indicating that the downward trend of lease rates may be near an end,” Holdner explains. “We are forecasting that lease rates will firm up in the early part of 2012 and will begin to increase in the second half of this year.”
The Orange County office market ended 2011 with low vacancy and availability, says the report. Direct/sublease, unoccupied space finished the year at 14.97%, a decrease from both 2011’s third quarter rate of 15.6% and the market high of 23% recorded in 1990.
“Occupancy has significantly improved since the Great-Recession peak of nearly 18% vacancy in Q2 of 2010, and we predict vacancy will continue its downward trend in 2012, ending the year at around 13.8 percent,” Holdner says.
Availability also decreased in Q4 of 2011, with all space being marketed—including direct, sublet, and occupied—at 19.44%, according to the report. That decrease, when compared to 2010’s fourth quarter rate of 21%, is slightly lower than the 2011’s third quarter rate of 19.82%.
Overall, according to Holdner, the Q4 report indicates improvement in all areas of Orange County’s office market, and the market recovery should continue as job creation increases and consumer confidence stabilizes.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
