Office Space Vacancy Rate Declines 2.5% During 1993

In a signal that the shaky local real estate market may be firming up, more office space was occupied in Orange County during 1993 than in the previous year.

The retail market, however, showed a decline, mainly because of the closing of several Builders Emporium stores.

The office vacancy rate fell 2.5% last year, according to year-end figures from Grubb & Ellis Commercial Real Estate Services.

“I think 1994 will be a transition year, and by 1995 the office market will have stabilized,” said Lonnie J. Riddle, an office broker in Grubb & Ellis’ Anaheim office. “There are pockets in the county where it will still be possible for tenants to get good deals in 1994.”

The county’s office vacancy rate for the final quarter last year was 18.1%, down from 20.6% at the end of 1992, Grubb & Ellis reported. The real estate brokerage tracks tenant movement in 54 million square feet of Orange County office space; it includes subleases as well as direct leases.

If tenant activity this year continues at 1993 levels and there is little construction, the office vacancy rate could go as low as 16.5% by the end of this year, said Tom Fillmore, research director for Grubb & Ellis.

The credit crunch--a reluctance by lenders to fund new projects--is a major factor hindering the construction of office buildings, and that is likely to continue for at least two more years, Riddle said. Also, some large financial institutions are still trying to get rid of real estate inherited through mergers, bankruptcies and foreclosures, so they will continue to sell office properties on the cheap. That, too, will discourage new development, he said.

Last year, 1.3 million square feet of office space was absorbed in Orange County, up from the 918,917 square feet of absorption for 1992. (Absorption is the net increase in the amount of occupied office space.)

In the retail market, the story was different. The closure of eight Builders Emporium sites in Orange County added more than 300,000 square feet of empty store space. That resulted in a negative absorption of 51,653 square feet of retail space for the year.

Still, Grubb & Ellis brokers expressed optimism that the retail market will be healthy this year, citing interest by major retailers.

“Orange County is still the glamour market for retailers,” said Greg Mickelson, a retail broker for Grubb & Ellis in Newport Beach. “They are going to continue to come to town.”

Vacancy Rates Retreat

Orange County’s commercial real estate vacancy rates for 1993 decreased in all categories except retail space, which increased to 6.3% from 5.2% in 1992.

Manufacturing, distribution, 1993: 15.3%

Office, 1993: 18.1%

Research, development, 1993 15.8%

Note: 1989-91 vacancy rate not available for retail spasce.

Source: Grubb & Ellis; researched by JANICE L. JONES / Los Angeles Times