Office Vacancy Rate in O.C. Is Lowest in Decade : Real estate: The second-quarter figure, 19.6%, sparks optimism in long-depressed commercial market.
Orange County’s office vacancy rate for the second quarter dropped to the lowest level since 1983, and sales and leasing activity for industrial space increased, according to a report released Thursday.
The survey by Grubb & Ellis Commercial Real Estate Services in Newport Beach raised hopes that the county’s lingering real estate downturn may at least have leveled off.
“This is very good news,” said Tom Fillmore, research director for Grubb & Ellis. “We have increased activity despite the current economic climate. People are realizing the value of having an office in the Orange County marketplace.”
Countywide, the office vacancy rate was 19.6% for the second quarter, compared to 20.5% for the previous three months and 21.7% for the second quarter of 1992.
Because of the declining vacancy rates and a lack of construction, rents appear to be stabilizing, Fillmore said.
That is encouraging tenants to look for the best deals, and as a result brokers are seeing a “dramatic increase in activity,” said George S. Spragins, district manager of Grubb & Ellis’ Newport Beach office. “I’m really optimistic about what the end of the year will look like.”
Spragins said that smaller office deals involving 3,000 to 5,000 square feet are responsible for an increase in net absorption--the amount of space taken off the market: “Most tenants are recognizing that if the economy does begin to improve, they’re not going to get a better deal than this.”
He said brokers are also seeing increased interest among tenants in buying the buildings they occupy.
A factor in the increase in office space absorption was that only one new office building was started during the second quarter--a 210,733-square-foot project by Birtcher Construction in Santa Ana. It is the first office building being constructed on speculation in Orange County since the end of 1991, Grubb & Ellis said.
The Grubb & Ellis real estate survey, conducted quarterly, also tracks the market for industrial properties and for research and development space. In both of those areas, according to Thursday’s report, vacancy rates were up at midyear. The rate for industrial space stood at 19.6%, compared to 17.2% a year earlier, while the rate for research and development property stood at 17.3%, up from 16.9%.
“There’s just more space out there, and more space is being brought to market. Companies are downsizing and moving from place to place within the county,” Fillmore said.
In the retail area, which includes shopping centers of 50,000 square feet or more but excludes strip shopping centers, the vacancy rate stood at 5.3%. That compares to 6.1% for the first quarter of 1993 and 5.8% for the third quarter of 1992, when Grubb & Ellis first began tracking retail.
“We had a couple large retail transactions, and we had a lot of spaces open up during the first quarter which are now being leased,” said Fillmore, who cited a large lease transaction for Brea Mall, which helped keep down vacancy rates. Not included in the latest figures are recent transactions in which the new tenants have not yet moved in. Among those, Fillmore said, are a deal by In-N-Out Burgers Inc., a fast-food restaurant chain based in Baldwin Park, to buy the 10-story University Tower in Irvine for $15.2 million; and an agreement by HomeBase Inc., a Fullerton-based chain of home improvement stores, to lease 165,000 square feet of space at Park Place in Irvine.
Real estate experts hailed the latest survey results as positive overall.
“I think it’s good news,” said Michael Meyer, managing partner at Kenneth Leventhal & Co. in Newport Beach, of the Grubb & Ellis report. “It’s the start of heading toward a better balance of supply and demand of space.
“There will be a steady increase of absorption of office space over the next three years, with very little new construction. So those vacancy rates will steadily decline as rental rates firm up.”
Meyer said that rental rates are leveling off in some areas of the county and are falling in other areas.
Commercial Real Estate Jobs Declining
Employment in the Orange County commercial real estate industry has dropped 10.3% since the market peaked in 1990. Number of jobs in thousands:
March 1990* May 1992 May 1993 Industrial 335 304 287 Retail 220 193 198 Office 225 208 215 Total 780 705 700
* Market peak Source: California Employment Development Department; Grubb & Ellis
Vacancy Rates at 10-Year Low
Orange County’s vacancy rates for commercial buildings are at their lowest level since 1983, suggesting that the market may be stabilizing after a long decline. RETAIL
1993 data includes only retail centers of 50,000 square feet or more. No comparable data was available for 1992. Vacancy rates: 2nd qtr. 1993
Central coast: 3.3%
South: 4.3%
Central: 7.0%
North: 5.3%
West: 5.5%
Total: 5.3% OFFICE
Vacancy rates for multi-tenant buildings and industrial parks of 25,000 square feet or more:
2nd qtr. 1992 2nd qtr. 1993 Airport area 23.7% 19.4% South 22.2% 18.8% Central 20.4% 20.4% North 16.6% 19.0% West 18.1% 20.1% Total 21.7% 19.6%
INDUSTRIAL
Vacancy rates for manufacturing and distribution sites of 10,000 square feet or more:
2nd qtr. 1992 2nd qtr. 1993 Airport area 19.0% 20.3% South 22.8% 23.7% Central 14.2% 19.2% North 16.0% 17.0% West 17.8% 21.7% Total 17.2% 19.6%
RESEARCH AND DEVELOPMENT
Vacancy rates for highly developed industrial sites of 5,000 square feet or more, with added parking and improvements:
2nd qtr. 1992 2nd qtr. 1993 Airport area 17.9% 16.9% South 23.3% 19.8% Central 12.7% 15.5% North 16.8% 20.6% West 8.6% 10.8% Total 16.9% 17.3%
Source: Grubb & Ellis Commercial Real Estate Services; Researched by JANICE L. JONES / Los Angeles Times
