Office Space Boom Seen: 5.2 Million Square Feet

Developers are likely to build a record 5.2 million square feet of office space in Orange County this year, commercial brokerage Grubb & Ellis Co. said in a quarterly survey Monday.

In the entire county, there are 42 million square feet in the larger buildings surveyed by Grubb & Ellis. That is only about 8 times what is expected to be built this year alone.

While Orange County is in no danger of reaching Los Angeles’ estimated 143 million square feet anytime soon, strong demand for office space has kept construction brisk.

Leased Quickly

Developers in the county have built a little more than 4 million square feet on average in each of the last 4 years, the brokerage said.

That space has leased quickly. Last year, another 3.6 million square feet was leased, or “absorbed,” in real estate jargon. That was second only to 1987’s 3.9 million.

So developers are putting the pedal to the metal again this year.

“Construction levels have been simply huge, but absorption has also been great,” said Dennis W. Macheski, research director for Grubb & Ellis’ southwest region.

In fact, absorption of office space has increased at about 12% a year in recent years. That’s about 3 times Orange County’s economic growth rate, according to Macheski, who spoke Monday at the company’s quarterly press briefing.

Still, many building owners are not making a killing. While the vacancy rate has remained steady thanks to the brisk leasing, at 23% it is still high. So the competition among landlords for tenants is keeping rents low.

Monthly office rents in the buildings surveyed by Grubb & Ellis--those with more than one tenant and containing more than 25,000 square feet--range from 70 cents a square foot to $1.89.

High Rents in Airport Area

Highest rents are in the John Wayne Airport area, starting at 75 cents a square foot and going up to $1.89; lowest are in the central portions of the county at 70 cents to $1.70. Rents in the central county, however, have been rising recently because few new buildings have been constructed in that area.

By far, the most leasing and the most construction are happening around the airport and in the southern--and until recently, largely undeveloped--half of the county, Grubb & Ellis brokers said.

In the south, by far the busiest area is the Irvine Co.’s huge Irvine Spectrum development at the junction of the San Diego and Santa Ana freeways.

Meanwhile, most owners are buying or developing office buildings now in hopes that the county’s economy will continue to grow while construction of office space slows. That means demand will increase and landlords can charge much higher rents in the future.

The construction boom in Orange County already runs counter to a national trend in which construction fell in 1986 and has still not recovered due to a lack of demand.

SURVEY OF COUNTY OFFICE SPACE BY REGIONS

*Space *Existing Under *New *Space Rentable *Vacant Vacancy Constr. Constr. Absorbed Region Space Space % 1989 1988 1988 Greater Airport 18,988 4,263 22 3,188 1,541 1,594 South County 2,523 418 17 1,809 234 210 Central County 12,845 3,247 25 143 1,614 1,266 North County 3,316 933 28 28 82 235 West County 3,983 809 20 45 86 305 Total 41,655 9,670 23 5,213 3,557 3,610

Monthly Lease Rates Per Sq Ft Region (Low-High) Greater Airport $0.75-1.89 South County 1.05-1.70 Central County 0.70-1.70 North County 0.85-1.60 West County 0.88-1.60 Total 0.70-1.89

* In thousands of square feet

Source: Grubb & Ellis