Offices Being Built to Fill Demand

Rising rents and historically low vacancy rates are prompting the development of several new Orange County office buildings, according to a report released Wednesday.

The overall vacancy rate for the county dropped to 10.22% at the end of September from 13.71% a year earlier, according to data released by CB Commercial Real Estate Group Inc.

The average asking monthly lease rate climbed 14% to $1.68 per square foot in the third quarter.

“It’s clearly a very strong market,” said Lynn Dort, a broker with Cushman & Wakefield in Irvine. “Landlords are pushing the rates up and justifiably so because there is not that much available space out there.”

Rents jumped the highest in the John Wayne Airport area, climbing 24% to an average of $2.03 from $1.64 the same time last year.

Lease rates jumped the most for top-quality high-rise space, to more than $3 at many locations, including posh Newport Center.

But higher lease rates have also started driving some larger tenants out of office space and into less expensive light-industrial buildings, said Sheri Cameron, CB Commercial research director.

Many business owners are making moves to central Orange County where more space is available and lease rates are lower, she said. Vacancy in this region tightened to 19.31% from 23.81% the same period a year ago.

And the tightening market has prompted several developers to begin constructing office buildings.

Two five-story buildings are underway in Brea and sites have been cleared for others in Aliso Viejo, Foothill Ranch and Cypress, according to Cameron. Others are planned in Irvine and Newport Beach.

Orange County’s industrial and retail markets also continued to flourish.

About 5.3-million square feet of industrial space was completed or is under construction this year--twice what was built last year. The new space has pushed the county’s industrial vacancy rate up slightly--to 7.83% from 7.46% at the end of the last quarter.

But construction is not expected to ease yet. Another 8.9 million square feet is in planning.

Despite a flurry of new retail center construction, vacancy actually declined in Orange County’s retail centers to 8.78% from 9.78% a year ago. Rents also dipped slightly, to an average of $1.40 at the end of the third quarter from $1.48 a year ago.

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Office Squeeze

Orange County office space was scarcer during the third quarter of 1997 than a year ago. Vacancy rates dropped everywhere except the western region. Third-quarter comparisons:

Countywide

1997 10.22%

1996 13.71

North

1997 11.23%

1996 14.67

Central

1997 19.31%

1996 23.81

West

1997 14.15%

1996 13.30

Airport

1997 6.15%

1996 9.33

South

1997 5.09%

1996 8.73

Key:

* North: Fullerton, part of Anaheim, Buena Park, Placentia, Brea and La Habra, Yorba Linda, La Palma

* Central: Orange, part of Anaheim, Garden Grove, Orange and portions of Santa Ana and Tustin

* West: Huntington Beach, Seal Beach, Stanton and Westminster

* Airport: Corona del Mar, Costa Mesa, Fountain Valley, Newport Beach, and parts of Irvine, Santa Ana and Tustin.

* South: Aliso Viejo, Laguna Hills, Laguna Niguel, Lake Forest, Mission Viejo, San Clemente, San Juan Capistrano, Rancho Santa Margarita and the Irvine Spectrum Source: CB Commercial