Office rents, vacancies rise in Orange County
Average Orange County office rents were higher in the second quarter than they were a year ago even though office vacancies ticked up slightly after struggling sub-prime mortgage lenders gave up space, according to data released Thursday.
Also pushing up overall vacancy and competing for tenants are new office buildings that have recently been built or are under construction.
Employers are still adding workers to their payrolls and the regional economy is expected to keep growing in the months ahead, paving the way for more office leasing, said Joe Vargas of Cushman & Wakefield, the real estate brokerage that compiled the data.
Overall vacancy in the second quarter was 8.8%, compared with 8.6% a year ago. The average rent sought by landlords rose 10% to $2.50 a square foot.
“Businesses have been expanding,” Vargas said. “It’s still a very healthy market” for office owners.
Rents are expected to climb for the rest of the year, with many landlords demanding rates starting at $3.30 a square foot for their brand-new buildings. Other landlords believe their space is underpriced and they can raise rents without losing tenants, according to the brokerage report.
“Orange County has a tremendous quality of life and great intellectual capital,” making it a draw for employers, Vargas said.
Whereas most of the new buildings completed in recent months have had tenants ready to move in, the bulk of the 3.5 million square feet scheduled to be opened this year is more risky “speculative” development, built without lease commitments from tenants.
The additional space could put downward pressure on rents, said broker Dave Girty of real estate brokerage Grubb & Ellis. “Landlords have held the line” on their monthly rates so far, he said, but some have recently offered other concessions to tenants, such as one month of free rent with a three-year lease.
A wild card potentially affecting the balance of power between landlords and tenants is the sub-prime lending industry, which is one of the county’s biggest employers.
Companies including Ameriquest Mortgage Co. have dumped office space back on the market after the sub-prime lending industry lost business during the recent slowdown in home sales.
