OC Office lease rates rise for the ninth consecutive quarter

The Orange County office market continued to improve during the second quarter of 2015, posting almost 450,000 square feet of positive net absorption for the quarter. The second quarter of 2015 marked the fifth consecutive quarter of positive net absorption, for a total of over three million square feet for the last five quarters, and the ninth consecutive quarter of rising lease rates. The average asking full-service gross lease rate finished the second quarter at $2.18, an increase of eighteen cents or 9% from 2014's second quarter average asking rate and well above the recent market low rate of $1.88 posted in the first quarter of 2013.

“This is great news for the Orange County market overall,” explains Holdner. “The rise in lease rates demonstrates that the market continues to improve, which further supports the recovery we've been forecasting for the past two years.”

Demand for Office Product Increases

As a whole, the Orange County office market posted 442,651 square feet of positive absorption in the second quarter of the year, giving the market a net total of over 8.8 million square feet of positive absorption since the third quarter of 2010, according to Voit's report.

One trend to note, according to Holdner, is the increase in construction. Total space under construction came in at just under 650,000 square feet for the second quarter of 2015. “We should see an increase in construction in the coming quarters, as typically the cranes come out when vacancy dips below 12%, and vacancy is currently 11.07%.”

As the second quarter of 2015 came to an end, vacancy was down 36 basis points from the previous quarter, direct/sublease space (unoccupied) finished the quarter at 11.07%, a decrease from the previous year's rate of 12.71% 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, defense, medical, and alternative energy will lead the charge of positive absorption in the Orange County office market.

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

Voit Real Estate Services is an 11-office commercial real estate firm that, through its brokerage and asset services professionals working together, provides strategic property solutions tailored to clients' needs.