OC Office Lease Rates Rise for the 11th Consecutive Quarter

The Orange County office market continued to improve during the first quarter of 2016, posting just over 125k sf of positive net absorption for the quarter, according to the latest research from real estate services firm Kidder Mathews. The first quarter of 2016 marked the eighth consecutive quarter of positive net absorption and the eleventh consecutive quarter of rising lease rates. The average asking full-service gross lease rate finished the first quarter at $2.30 per square foot; an increase of $0.19 or 9.0% from 2015’s first quarter average asking rate.

“This is great news for the Orange County market overall,” explains Jerry Holdner, director of research at Kidder Mathews. “The rise in lease rates demonstrates that the market continues to improve and support the new construction we are seeing in the southern part of the county,” he says.

Demand for Office Product Increases

The Orange County office market posted 128.6k sf of positive absorption in the first quarter of the year, giving the market a net total of over 10.4 msf of positive absorption since the third quarter of 2010, per the Kidder Mathews report.

According to Holdner, one trend to note is the increase in construction. Total space under construction came in at just over 3 msf for the first quarter of 2016. Expect to see an increase in construction in the coming quarters, as construction cranes typically come out when vacancy dips below 12% – vacancy is currently at 10.3%.”

As the first quarter of 2016 came to an end, vacancy ticked up a bit from the single digit rate of 9.9% to 10.3%; a 40 basis point increase from the previous quarter which equates to 14.4 msf of vacant office space countywide. This is down from the 14.8 msf that was vacant a year ago – a decrease of 2.7%. The vacancy rate should remain at this 10% level for the near future even with the new space that is being added to the market.

Asking Lease Rates in Industrial Market Almost To Pre-Recession Levels

The Orange County industrial market took significant strides toward continued improvement in the first quarter of 2016 with a significant asking lease rate increase. The average asking lease rate in the first quarter of 2016 was $0.72 per square foot on a triple net basis per month. These asking rates are up 4.3% from the fourth quarter and 7.5% year-over-year. Peak lease rates were established in the second quarter of 2008, when they were $0.78 per square foot.

“In the Orange County industrial market, both vacancy and availability have reduced 50 percent over the last four years,” says Holdner. “The substantial decreases in vacancy and availability are contributing to the gains in sale prices and asking lease rates.”

“Currently, less than one percent of the inventory in the Orange County industrial market is available for sale. This lack of supply will continue to place upward pressure on pricing going forward. It is a great time to be a seller,” he explained.

“Overall, we continue to be optimistic about the Orange County market,” said Holdner. “We will continue to see improvement in both the office and industrial markets and anticipate positive gains moving forward, provided job creation continues and consumer confidence stabilizes.”

 

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