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IRVINE, CA-With Orange County-based companies in a wide variety of industries continuing to hire highly skilled and educated workers, demand for office space will continue, reports Voit Real Estate Services. However, the rate of growth is expected to moderate in the coming quarters since the bulk of pent-up demand may have dissipated.
The firm reports that office leasing velocity in all size ranges has fallen to an average of about 3.2 million square feet per quarter over the past year, down from about 3.6 million square feet per quarter in 2011. This trend will likely slow absorption in the near term. Also, the amount of sublease space available has also trended up over the past four quarters after steadily declining since 2008, which suggests that gray space may be on the rise, tempering the need for local tenants to lease more space, according to Voit.
The forecast calls for net absorption to increase in 2013 due to anticipated job growth, but these secondary indicators suggest that the risks may be to the downside. “We've been seeing positive absorption of over 500,000 square feet per quarter for the past five quarters,” Jerry Holdner, VP of market research for Voit and author of the firm's most recent report on the Orange County office market, tells GlobeSt.com. “Therefore, occupied space continues to increase, and vacancies continue to fall. This will put upward pressure on lease rates going forward.”
Holdner adds that currently, there's a lot of money looking for quality assets. Therefore, pricing on those assets will continue to increase, which may motivate some owners to sell.
In addition, office rents are headed up, according to the report. Holdner says he expects to see 3% to 5% rent growth over the next 12 months.
As GlobeSt.com recently reported, 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.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
