Demand for Office, Industrial Space Up Slightly : Real estate: But brokers say the decline in lease and sale prices means market has yet to hit bottom.
The demand for office and industrial space in Orange County picked up slightly in the first quarter, but brokers say the continued decline in lease and sale prices shows that market has yet to reach its low point.
“We’ll probably bounce along the bottom, although prices might decline a bit,” said Bob Bach, vice president and regional director of research at the Orange office of Grubb & Ellis Co., a national real estate brokerage that gathers the data quarterly.
Even so, brokers say the virtual standstill in construction of both office and industrial buildings could make a significant dent on vacancy rates later in the year. More businesses are expressing interest in moving from Los Angeles County, in part because of fears of further riots after the jury reaches a decision in the second trial of four police officers accused of beating Rodney G. King, brokers said.
For the first quarter, 20.5% of Orange County’s office space stood empty, compared to 21.6% a year earlier. Brokers reported brisk activity during the quarter, but much of it was from tenants taking advantage of lower prices to move elsewhere within the county.
As a result, tenants took only 86,812 square feet off the market. For the first quarter last year, 104,227 square feet were absorbed.
“There’s really no outside growth boosting the amount of absorption in the county,” said Tom Fillmore, Orange County research director for Grubb & Ellis. Instead, companies took advantage of falling prices on plush office space and moved their quarters from one area to another, he said. In some cases, tenants bought their buildings as prices came in line with what they can afford.
The office market “is precarious and uncertain,” said Lonnie Riddle, senior vice president of Grubb & Ellis’ office properties division in Anaheim. “Any tenant that comes by is a jewel.”
Several tenants have moved from central Orange County, which has the highest vacancy rate--21.5%--to the airport area, which has nearly half of the county’s office space. For example, Syndicated Office Systems, a collection and adjustment firm, moved from its 40,000-square-foot offices in Orange to 61,000 square feet at MacArthur Place in Santa Ana near John Wayne Airport.
Top-of-the-line office space in the airport area is being leased for $1.45 to $1.55 a square foot, down about 10 cents from a year ago, said George Economos, senior vice president of Grubb & Ellis’ office properties division. The decline is not as significant as in other areas, and the big chunks of space there are becoming more scarce, he said.
Meanwhile, industrial space in the county was 18.9% vacant, about the same as a year earlier. Sales and leasing activity was up about 25%, however, from a year ago.
Still, any increase in activity has been offset by the continued loss of industrial jobs in defense and aerospace, which puts more industrial space on the market.
“Every sizable deal seems to hit a new low pricewise,” said Art Holland, industrial properties specialist for Grubb & Ellis in Anaheim.
The majority of industrial space leased or sold during the quarter was in the airport area, where the vacancy rate was 18.9%, down from 20.7% last year. About 720,304 square feet of space was sold or leased, up from 473,051 a year earlier. Business also was brisk in North County, where the vacancy rate was 15.5%, compared to 16.6% a year earlier.
Grubb & Ellis only recently started gathering quarterly information on retail properties. That vacancy rate rose to 6.1% this year from 5.2% for the final three months of 1992. The loss of tenants was blamed on the closing of smaller retail outlets, such as stores that performed below expectations during the holiday season.
“No one opens new stores in January, February and March,” said Greg Mickelson, retail properties specialist at Grubb & Ellis. “It’s just the nature of the beast.”
This Space for Rent
The amount of office, industrial and retail space standing empty in Orange County changed little from the last quarter of 1992 through this year’s first quarter.
Source: Grubb & Ellis Orange County Research Services Group
