Office Vacancy Rate Edges Up in 1st Quarter

Orange County office vacancy rates rose slightly during the first three months of 1996, a sign that the commercial real estate market is not recovering as quickly as expected, according to data released Wednesday by CB Commercial Real Estate Group.

While Irvine showed strong improvement as vacancies declined in buildings near John Wayne Airport, a sharp increase in empty office space in the Santa Ana Civic Center and areas of Anaheim helped boost countywide vacancy rates.

“We had expected to see continuing improvement in office vacancy rates,” said Sheri Cameron, director of research for CB Commercial in Newport Beach. “But we think this is just a blip and the rest of the year will show declines as the economy improves.”

The vacancy rate in Orange County’s office buildings stood at 14.66% at the end of the first quarter of 1996, up slightly from 14.56% at the end of 1995. Still, the numbers are an improvement from countywide vacancy rates of more than 20% in 1992 and 15.48% during the first quarter of 1995.

The Newport Beach area had the lowest vacancy rate, 4.5%, while the Santa Ana Civic Center had one of the highest rate, 38.7%, in offices excluding government and medical buildings. The vacancy rate for the area around the Civic Center was the highest since at least 1992, as high crime in the area and declining lease prices for office space in other parts of the county have pushed tenants away.

In a more encouraging sign, average rates for leases on Orange County office space increased slightly to $1.46 per square foot, the highest since 1993. More important, CB Commercial noted, special lease deals are declining as landlords now require tenants to pay for parking and building improvements.

“This is positive. If lease rates continue to go up we might see some new construction,” said Scott Garmon, head of Orange County research for Cushman & Wakefield, a real estate brokerage in Newport Beach.

With no major new office building construction expected this year, lease rates will continue to rise and vacancies decline throughout the year, CB Commercial predicted.

The retail and industrial sectors of the commercial real estate market had strong performances during the quarter, the real estate brokerage firm said.

The market for industrial and research buildings showed improvement, with prices stabilizing and new lease activity increasing. With less space available, more than 44 industrial buildings are under construction in Orange County, including a 500,000-square-foot building in Anaheim by Security Capital, a real estate investment trust in Denver.

In addition, the Irvine Co. is constructing University Research Park, a complex that includes 14 buildings earmarked for industrial and research and development space.

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Office Outlook

Despite a slight increase in the first quarter of 1996, Orange County office vacancy rates are nearly a percentage point lower than the same quarter last year. The county’s central area has by far the biggest rate. Here are the trend and first-quarter rates:

Countywide Vacancy Trend

1995

1st qtr.: 15.48%

2nd qtr.: 15.86%

3rd qtr.: 15.70%

4th qtr.: 14.56%

1996

1st qtr.: 14.66%

First-Quarter Rates

Central: 22.83%

West: 17.85%

North: 16.22%

Greater airport: 11.09%

South: 9.54%

Key:

Central: Anaheim, Garden Grove, Orange and portions of Santa Ana and Tustin

West: Huntington Beach, Seal Beach, Stanton, Cypress, Westminster and Los Alamitos

North: Brea, Buena Park, Fullerton, La Habra, La Palma, Placentia, Yorba Linda and a portion of Anaheim

Greater airport: Corona del Mar, El Toro, Costa Mesa, Fountain Valley, Newport Beach and portions of Irvine, Santa Ana and Tustin

South: Aliso Viejo, Laguna Hills, Laguna Niguel, Lake Forest, Mission Viejo, San Clemente, San Juan Capistrano, Rancho Santa Margarita and Irvine Spectrum

Note: Includes existing single- and multiple-tenant buildings 30,000 feet or larger; excludes government and medical buildings

Source: CB Commercial; Researched by JANICE L. JONES / Los Angeles Times

Civic Center Decline

While office vacancy rates throughout the county are much lower than in 1992, the trend for Santa Ana’s Civic Center is just the opposite. The vacancy rate there is now more than double the countywide figure. The data include buildings 30,000 square feet or larger, except government and medical structures:

Civic Center

1st quarter, 1996: 38.73%

Countywide

1st quarter, 1996: 14.66%

Source: CB Commercial; Researched by JANICE L. JONES / Los Angeles Times