Fluor Moves Out; Rents Move Up

By MELINDA FULMER

April 4, 1997 12 AM PT

TIMES STAFF WRITER

The amount of empty Orange County office space in the first quarter this year 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, 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 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.

Industrial and retail markets also improved, the real estate brokerage said.

Countywide the vacancy rate for industrial space dropped to 7%, a level that many analysts say can’t be improved upon, considering the amount of new buildings that are planned or under construction.

Three dozen buildings, primarily warehouse and distribution facilities, are being built to give Orange County 2.5 million square feet of new industrial space. More than half of it is in South County, and most of that in Foothill Ranch, Pacific Commercentre Lake Forest and the Irvine Spectrum.

Construction is expected to begin leveling off later this year as supply begins to match demand, analysts said.

Lease rates at the new projects are much higher than the average rents. For example, space in new buildings for research and development companies costs as much as 40% more than space in 10-year-old structures, Cameron said.

The county’s retail market continues to expand.

Almost 2 million square feet of new space is under construction and another 900,000 square feet is planned, including centers in Rancho Santa Margarita, Santa Ana, Westminster and Orange. In Orange, a drive-in at Katella Avenue and Main Street is being converted to an entertainment center and theater complex.

Indeed, many of the new retail centers being developed will be anchored by theaters and carry much higher rents. New centers being built this year are charging 35% more than the average asking retail lease rate at existing centers.

All the new shop space caused retail vacancies to inch up this quarter, though the market is expected to remain fairly stable for the rest of the year.

The highest retail vacancy rate is north Orange County’s 12.1%. The area has more older, smaller retail centers that are unattractive to larger grocery and department stores, Cameron said. As land becomes scarce, these properties will become targets for redevelopment, she said.

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Office Vacancy Tightens ...

Vacant office space in Orange county dropped to 11.98% during th e first quarter, the lowest level since 1981. The county’s southern, central and airport regions posted the largest decreases. First-quarter office vacancy rates, by region:

North:

1996: 16.58%

1997: 13.775

Central:

1996: 25.60%

1997: 21.64%

West:

1996: 17.97%

1997: 15.75%

Airport:

1996: 11.21%

1997: 7.54%

South:

1996: 10.96%

1997: 6.37%

Countywide:

1996: 15.68%

1997: 11.89%

With a tighter space market came rising prices, as asking lease rates increased countywide--most, notably in South County and near the airport. First-quarter average asking lease rates, per square foot:

North:

1996: $1.38

1997: $1.41

Central:

1996: $1.32

1997: $1.32

West:

1996: $1.42

1997: $1.41

Airport:

1996: $1.57

1997: $1.77