Office Vacancy Rates Continue Steady Descent

A large local real estate broker said Wednesday that vacancy rates in Orange County’s larger office buildings could soon drop below 20% for the first time in nearly five years.

At the end of the first half of this year, the rate was 20.5%, said Coldwell Banker Commercial Real Estate Services.

But that has been dropping more or less steadily from a peak of 23% in early 1988. There are always plenty of tenants looking for office space in the county’s vibrant economy; the problem is there’s just too much space for them to fill.

Now that banks and thrifts are reducing real estate lending, however, construction is starting to wane, said the brokerage in its annual midyear report on the Orange County market.

The report said every type of commercial real estate in this market is overbuilt.

And unlike in the office market, demand for industrial buildings is declining ominously, the brokerage said. Tenants took only 6.3 million square feet of space off the market in the first half of the year, the lowest amount in four years.

The market for stores and other retail buildings, though, remains strong in areas where population is still growing rapidly. That’s mostly in the less-developed southern half of the county, the brokerage said. In most places, vacancy rates are below 10%, or half of the office vacancy rate.