Office Vacancy Rates in O.C. Drop to 10.6%

Office vacancy rates in Orange County dropped to their lowest level in 16 years, thanks to a flurry of leasing by growing companies and a lack of new construction, according to a report released Wednesday.

The overall vacancy rate for Orange County dropped to 10.57% at the end of June from 14.73% a year earlier and is expected to tighten further this year, according to the report released by CB Commercial Real Estate Group Inc.

“Supply is going to be drying up. There is only so much space available in desirable markets,” said Sheri Cameron, CB Commercial’s research director.

The turnaround in the office market is a reflection of the booming Orange County economy: Unemployment was down to 3.1% in April, 39,000 new jobs were added to the county last year and, according to a recent UC Irvine survey, most executives plan to do more hiring this year. In the John Wayne Airport area, where more than half of Orange County’s office space is located, vacancy dropped to 6.16% at the end of the second quarter from 10.34% last year. Nearly a third of the space available for lease in the area was taken off the market.

In South County--where many top executives live and have moved their companies--the office market was the tightest as the vacancy rate dropped to 5.76% from 9.46%, prompting landlords there to raise rents as much as 14%. One developer even plans to construct an office building partly on speculation, something many thought wouldn’t happen for years.

“Over the next two to three years [until new buildings are constructed], it’s going to be a landlord’s market all the way,” said George Economos, a senior vice president with Grubb & Ellis in Newport Beach. “You can look for substantial rent increases to continue.”

Higher rental rates have started to push some tenants to less expensive central Orange County.