COVID HITS THE AIRPORT MARKET
Companies in the Airport market shed a near-record volume of space in the third quarter, forcing the countywide office vacancy rate up 73 basis points to 11.6%, as the economic shock of the Covid pandemic rippled through the county.
The Airport market, which has 37% of the county’s 117- million-SF inventory, was 724,151 SF in the red in the third quarter, the most negative absorption since Q4 2007. It drove up the countywide negative absorption total to 790,568 SF for the quarter and negative 657,817 SF year to date. Countywide, net absorption gains averaged 670,696 SF annually over the previous three years.
Overall rent growth was weak prior to Covid, gaining 3% since 2017, and year-over-year growth was nil. Nevertheless, despite continued uncertainty and sharply reduced leasing activity, Lee & Associates office specialists are not yet seeing Covid discounts amid questions on whether and how much eviction moratoriums are propping up the market.
Only two of the county’s five markets reported Q3 growth.
There was 45,374 SF of net absorption in South County, whose year-to-date total of 262,657 SF is the most in the county. There was 1,317 SF of net growth reported in North County, which has 14.6 million SF of office space and a 6.2% vacancy rate, the county’s lowest.
With 101,968 SF of negative absorption in Q3, the 22-million-SF Central County market has contracted in nine of the last 11 quarters, putting 474,820 SF back on the market. Nevertheless, there was 5.2% year-over-year rent growth.
Negative Q3 absorption totaled 11,139 SF in the small 9.6-million-SF West County market. Tenants in West County buildings have expanded 56,811 SF this year. Despite its 6.9% vacancy rate, average rent growth has been virtually flat the last two years.
The five largest blocks of space to come back on the market at the Airport in the third quarter totaled more than 260,000 SF and ranged from 22,000 SF to 75,000SF. There has been virtually no growth in average rents since 2017 in the Airport market, and the Q3 total of sublet space available, 357,356 SF, is the most since 2006.
The county’s biggest lease of the year was signed in August. Panasonic Avionics leased 260,000 SF for 1,600 headquarters employees at Park Place at Michelson Drive and Jamboree Road in Irvine. The company – which makes in-flight passenger video and communications gear – is moving from about 300,000 SF across several low-rise buildings in Lake Forest into as many as five of Park Place’s 13 buildings.
The largest sale of the quarter was the $54.8-million purchase of the 10-story 4 Hutton Centre by LaSalle Investment Management. The 10-story building traded for $252.57 per SF. The building last sold in 2011 for $37 million.
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