O.C. Office Vacancies Drop to 16-Year Low

The amount of empty Orange County office space dwindled to its lowest point in 16 years, pushing rental rates up and putting building plans on a fast track.

The vacancy rate dropped to 12% as a total of 652,478 square feet of office space was leased in the first three months of the year, according to data released Thursday by CB Commercial Real Estate Group. About 10% of the county’s available office space was taken off the market.

“Countywide, [leasing] activity is good,” said Anaheim-based broker Tom Abel. “All indications are that it will continue to be strong due to the improving economy and projected employment and population growth.”

The regions showing the sharpest improvement were south and central Orange County. In the south county, vacancy rates dropped to 6.37% in the first three months, from 11% in last year’s first quarter. In the central area, vacancy edged down to 21.6% from 25.6%.

The tightening in the office market is expected to push rents up 8.4% countywide by year’s end to a monthly average of $1.64 a square foot, CB research predicts.

A shortage of top-quality space should raise rates on Class A office complexes more than 10%, as long as large blocks of office space aren’t dumped on the market by companies that relocate.

High office rental costs elsewhere are expected to lure even more companies to central Orange County in the coming year. Higher rents and lower vacancy rates also should spur development of new office buildings, industry analysts say.

“We anticipate the groundbreaking of several office projects in the latter half of the year,” said Sheri Cameron, director of research for CB Commercial in Newport Beach.

Orange County’s recovery is part of a broader pattern in Southern California commercial real estate as an improving economy raises rents and fills office buildings that lost tenants throughout the recession. Other strong office markets include Burbank, Glendale and the Westside.

Los Angeles County office space statistics won’t be available for a few days, but a preliminary report from CB shows the region’s biggest market, downtown Los Angeles, with an 18.6% vacancy rate in the first quarter, down 1% from a year ago. Landlords’ average asking price for monthly rents also rose slightly, from $1.33 per square foot to $1.36.

Though downtown has been one of the county’s softest markets for several years, “there is a lot of positive energy now,” said Kathryn Schloessman, CB Commercial senior vice president. More than 2.7 million square feet of office space was leased downtown in 1996, she said, and large chunks of contiguous space--blocks of more than 75,000 square feet--are almost gone.