REAL ESTATE : Office Leasing Rate Expected to Decline by 20% During 1990

Last year, tenants leased a record 4.4 million square feet of additional office space in Orange County, but a local real estate consultant is estimating a 20% drop in the rate at which office space is occupied this year.

“Slower economic growth rates both nationally and in Southern California have impacted the expansion plans for a number of firms,” said Robert Dunham, president of the Newport Economics Group in Newport Beach, in a recent study.

Dunham said absorption of office space dropped from an all-time high of 2.6 million square feet during the first half of 1989 to 1.8 million this year.

Based on that rate, the consultant expects absorption this year to be 3.5 million square feet.

Orange County has been gaining an average of 52,000 jobs a year, but only 30,000 new jobs are expected to be created this year. But the news is not all bad for landlords, according to the report. Most of the decline is in manufacturing and construction, while office users are still showing modest gains.

And construction is also slowing down, which means the area’s high vacancy rates may also decline some. In fact, Dunham says the rate edged down to around 17% during the first half of the year. About 10 million square feet of office space were vacant.

There are only 3.4 million square feet of space under construction now, says Dunham, “the lowest level in many years.” Roughly five years ago, there were 7 million square feet of space under construction.

Still, rents remain low, the report says, averaging about $1.75 to $1.85 per square foot per month in major high-rise office buildings.

In the long term, Dunham expects occupancy to keep increasing in the county but at more modest rates.