Strong demand for Orange County office space continued in the third quarter as the vacancy rate settled at 10.3%.  There was positive net absorption across all five of the county’s submarkets.

The rate of absorption could be healthier for much of the highly touted “creative space,” featuring open floorplans and highly designed common areas aimed at companies with younger workforces.  In the last two years developers have spent millions of dollars to enhance more than 1 million sq. ft. of existing buildings in hopes of commanding premium rents.  But of the largest projects only one, The Habitat in Irvine by Bixby Land Company, is leased up.  Bixby signed Karma Automotive for the 242,462 sq. ft. project in August.  

There has been a handful of 10,000-sq.-ft to 12,000-sq.-ft. leases, but none yet for the many available 40,000-sq.-ft. to 50,000-sq.-ft. blocks of space.  One reason could be pricing.  A project at the Airport is asking $4 per sq. ft. – more than for some nearby high-rise space.  Another project in Anaheim is asking $2.85 per sq. ft., nearly equal to asking rates for Class A buildings at the Stadium. 

It was the 10th consecutive quarter of positive absorption in the 1,313 office buildings in Lee & Associates’ quarterly survey and for the first time total occupancy surpassed 100 million sq. ft.  Year-over-year average asking rents are up 11% in Class A buildings and 4.8% in Class B buildings.

The Airport submarket, which has 45.8 million sq. ft. of space and the bulk of the county’s Class A office buildings, posted 167,833 sq. ft. of net absorption and its vacancy rate fell from 10.2% to 9.9%.

South County with 23.4 million sq. ft. of office space leads in overall demand with an 8.2% vacancy rate.  Third-quarter net absorption was 9,370 sq. ft. and totals 768,634 sq. ft. over the last four quarters.  Average rents are up 7.5% year over year.

The vacancy rate fell to 9% in West County, a submarket with 8.9 million sq. ft. in Los Alamitos, Huntington Beach, Seal Beach and Cypress, Seal Beach and Westminster. 

The Central County submarket posted its second straight quarter of positive net absorption but has put 52,938 sq. ft. of space back on the market over the last four quarters.  Its vacancy rate at the end of Q3 was 13.9%, down only slightly from the 15% at the bottom of the recession, and average rents have increased 12.1% in the last three years.

Third-quarter net absorption in North County was 38,146 sq. ft. and totals 169,646 year to date.  The vacancy rate fell from 10.5% to 10.2% and average asking rents are up 5% year over year.

With about 34 million sq. ft. throughout 386 buildings, Irvine has the most office space of any city in Orange County.  The overall vacancy rate is 8.3%, virtually unchanged from a year ago, and average asking rents are up 6% year over year.

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