O.C. Businesses Are Leasing Office Space at Torrid Pace

Companies are renting Orange County office space this year at a faster pace than they have in a decade, as a wave of new leases has created a thriving market, according to a recent report.

In the first nine months, leases of office space in the county saw a net gain of nearly 2.8 million square feet, at least 12% greater than the net gain for any full year since 1990, according to a quarterly report released this week by Voit Commercial Brokerage of Woodland Hills.

By the end of December, companies will have leased at least 3.6 million square feet more this year than they will have vacated in the county, said Jerry Holdner, a Voit vice president who conducted the survey.

The net gain or loss in rented space is called absorption and is one indication of business growth and the vitality of a commercial office market.

Since January, a number of companies have shown greater confidence in the county’s economy by expanding, relocating or starting up here, leading to a surge in leases. The picture is rosier in Orange County than in Los Angeles County, where the net gain countywide is tapering off.

The fast-paced leasing in Orange County has gobbled up an increased amount of office space that came on the market this year. That has helped to keep vacancy rates below 10% all year, including a record low of 7.9% for the second quarter. The vacancy rate for the third quarter crept up a bit to 8.2%.

It also has helped to spur rents in the county. The typical office rented for $2.15 a square foot in the third quarter, compared with $2.03 a square foot in last year’s third quarter.

High job growth over the last three years has forced more companies to look for bigger quarters, said economist James Doti, president of Chapman University. Some companies, he said, also are leasing space they don’t need yet as insurance against a possible slowdown in construction.

The type of tenants, meanwhile, has shifted from a decade ago, when professional groups such as law firms, accountants and insurance companies were the primary tenants, said John Pierce, a Voit senior vice president. Now, analysts said, high-technology companies are increasingly filling the new space.

Voit said 2.75 million square feet of space under construction is expected to be completed by 2001. Despite some possible weakening in the economy, analysts believe new offices will be leased at about the same pace as they are being built.

With cautious lenders requiring more developer money in deals, there is less speculative construction--structures being built without tenants signed up in advance. That discourages overbuilding, analysts said.

“There’s nothing on the horizon to say we’ve got trouble coming,” said Pierce.

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O.C. Office Vacancy rates

(4th quarter figures used for each year, except 2000)

‘00: 8.2

‘90: 20.4

Office Space Net Absorption

(in millions of square feet)

1990: 2.5

2000: 3.6*

*projected

* Net absorption reflects the gain in rented space. Vacancy rate is the total vacant square footage divided by total rentable square footage in all existing buildings.

Source: Voit Commercial Brokerage