Vacant Office Space Remains a Bargain at 21% in Orange County

Orange County’s expanding market for office space continued to be a bargain for tenants during the first half of the year, according to two surveys of office-leasing trends released this week.

And while commercial tenants in some areas are finding that incentive perks are being offered a little less freely these days, they can generally expect to continue finding good deals. Even though new construction here is declining rapidly, at current leasing rates Orange County has enough vacant office space--8.86 million square feet--to last another 31 months.

Studies prepared by Grubb & Ellis Co. and Coldwell Banker tabulated data differently, but the two firms agreed on the amount of vacant office space in the county--about 21%.

Grubb & Ellis--which measures leasing activity for 450 buildings of more than 25,000 square feet--showed the vacancy level dropping one percentage point from the 22% recorded last quarter, but gaining three percentage points from the 18% recorded in mid-1986.

Coldwell Banker--which surveyed 639 buildings of at least 30,000 square feet each--showed the vacancy level increasing by two-tenths of 1 percentage point, to 21.9% from 21.7% recorded during the first quarter. That marks almost 2% more vacant space from the 20.1% recorded for the first two quarters of 1986.

By far, the bulk of the most recent leasing activity was in the Orange County Airport area and in the central county--extending from Anaheim down through Tustin, Costa Mesa and Newport Beach, according to the Grubb & Ellis report. The airport area also had the second-highest vacancy factor at 23%, outdistanced only by the far North County areas, including La Habra, Brea and Buena Park, where 25% of the space is vacant.

Despite the county’s disappointing vacancy rate, spokesmen for both companies said the availability of space here should not be cause for concern.

Scott Perley, manager of Coldwell Banker’s Santa Ana office, cited Orange County’s absorption rate--which measures the level of leasing activity--as an indicator that the demand for office space is strong.

The absorption rate gauges the net change in occupancy or the amount of newly built office space leased during a particular period.

Perley said a record 2.2 million square feet of new office space was absorbed during the first half of 1987, compared with 1.67 million square feet in the first six months of last year. “We also see the overall level of new office development declining,” he said.

The Coldwell Banker study showed that total office space under construction dropped 16% this year to about 4.6 million square feet, from 5.5 million square feet from yearend.

The Grubb & Ellis study, however, showed an absorption level that plunged from mid-1986. So far this year, 1.7 million net square feet of office space was leased, down from 2.3 million square feet in the same period a year ago, said George Spragins, vice president and district manager in Newport Beach.

But “the second half of the year typically produces more leasing than the first half,” said Spragins, who predicts that Orange County absorption this year will total 2.8 million square feet.

Despite the difference in the two studies’ findings on absorption, which largely stems from methods of tabulation, both companies agreed that the rate is still a healthy one.

Even with the soft market for office space, developers in some areas are not offering quite such big incentives--such as free rent and improvement packages--to lure tenants.

In the South County--particularly the Irvine and Newport Beach areas--landlords’ concessions are tapering off because the supply of space has shrunk slightly. “Everybody is still fighting for the tenant, but it appears to becoming less of a tenant market,” said David R. Hibbard, vice president and district manager with Grubb & Ellis.

The wide availability of perks has not changed for tenants in areas with high vacancy rates, such as the north county, according to both companies.

The picture should brighten for developers during the second half of the year, notwithstanding the estimated 4.6 million to 6.6 million square feet of projects being built.