Rents in Orange County office buildings should remain a bargain; more than 40 new buildings are going up while vacancy rates have remained high.
In fact, tenants leased only half as much office space during the summer as they did in the spring, according to a Grubb & Ellis survey released Tuesday.
As a result, the vacancy rate rose to 25% during the third quarter, or 10 million square feet. There is 41 million square feet of space in the county’s 600 large office buildings.
The second-quarter vacancy rate was 24%, and the rate during the first quarter was 25%. The year-earlier third-quarter vacancy rate was 23%, according to the survey.
Meanwhile, developers are putting up another 42 buildings with 4.5 million square feet of space.
Most of the new buildings are in the southern half of the county or around John Wayne Airport.
For some idea of how much space 4.5 million square feet is, that’s 64 times the size of the average office building in the county, which averages 70,000 square feet.
What does all this mean?
Grubb & Ellis says it’s not sure why companies leased so little office space this summer.
But it’s not a sign of weakness in the local economy, said Dennis Macheski, vice president and regional director of research.
Instead, Macheski and Grubb & Ellis brokers say a lot of companies are still shopping for office space.
With so many deals around and so many more brokers competing for their business, tenants are taking longer to make up their minds, Macheski said.
There is also usually a dip in leasing activity in the third quarter, but this year it was a much deeper dip than usual.
So instead of last year’s record, when tenants leased 3.9 million square feet of office space, this year only a little more than 3 million feet will be leased, Macheski said.
Over the next three years, the survey found, massive amounts of office space in dozens of buildings will come on the market around the airport and in the southern part of the county.
The strong Orange County economy should provide large numbers of office tenants for those buildings over the next few years.
But so many new buildings will go up that the vacancy rate will probably continue to hover in the 20% range, Macheski said.
ORANGE COUNTY OFFICE SPACE/THIRD QUARTER SURVEY
Number of Rentable Vacancy Buildings Under Space Under Market Area Square Ft. Rate Construction Construction Airport Area 18,717,922 24% 16 2,514,373 South County 2,366,415 14% 20 1,674,893 Central County 12,786,518 28% 4 184,500 North County 3,315,927 30% 1 28,000 West County 3,807,199 20% 1 85,637 County total 40,933,981 25% 42 4,487,403
Absorption Market Area Yr to Date Airport Area 1,088,808 South County 182,271 Central County 882,756 North County 166,027 West County 233,931 County total 2,553,793
Source: Grubb & Ellis