03
Apr2014
Voit/CORFAC Reports Rising Lease Rates for Office and Low Industrial Vacancy in Orange County Q1 Market Reports
Contact:Jerry Holdner(949) 263-5371Jholdner@voitco.com
Orange County, CA (April 3, 2014) – In the first quarter of 2014, the Orange County office market posted the fourth straight quarter of rising asking lease rates, increasing from the first quarter of 2013 rate of $1.88, full service gross basis, to $1.96, according to the First Quarter Market Report from Voit Real Estate Services/CORFAC International. In addition, the industrial market in Orange County posted one of the lowest vacancy rates seen in over 5 years, finishing the quarter at 3.96 percent.
“These are encouraging numbers across the board, and we anticipate that this improvement will continue steadily throughout 2014,” says Jerry Holdner, Vice President of Market Research at Voit/CORFAC. “The big news is that average asking lease rates began increasing in the second quarter of 2013 in the office market and have continued steadily ticking up.”
Class B Office Space Fuels Activity in Orange CountyVoit’s Q1 2014 market report indicates ongoing signs of recovery in the Orange County office market, which ended the quarter at 13.01 percent vacancy, significantly down from both the Great-Recession peak of nearly 18 percent in Q2 2010 and the market high of 23 percent recorded in 1990. Availability followed the same trend, ending the first quarter at 16.49 percent - a decrease of over one full percentage point when compared to Q1 2013.
Class B space is fueling the activity in Orange County, according to Voit’s report, which indicates that Class B space had the greatest amount of positive absorption in the first quarter of 2014, coming in at over 260,000 square feet.
“Companies continue to expand in Orange County, which is bringing ongoing stability to the market,” explains Holdner.
“Research-oriented businesses, including IT, defense, medical and alternative energy companies are most likely to lead the charge of positive absorption over the next few years,” comments Holdner.In addition to improving occupancy, the Orange County office market also demonstrated encouraging average asking lease rate numbers.
“Office rents are increasing, and concessions are decreasing,” says Holdner. “Both are strong indications that we reached a bottom in the downward trend of asking office lease rates in the first quarter of 2013. We anticipate that rates will continue to increase in the second half of 2014.”
The average asking lease rate per month per square foot in the Orange County office market was $1.96 at the end of 2014’s first quarter, an increase of 4.62% since Q1 2013.
In addition, some construction projects began to resurface in the Orange County office market recently, and Voit’s report indicates that the total office space under construction came in at just over 900,000 square feet for the first quarter of the year. Voit’s report identifies one build-to-suit project as the most notable construction project in the office market during the quarter, a 479,800-square-foot project for PIMCO at Fashion Island in Newport Beach. Also to note is a 469,000-square-foot build-to-suit project for Hyundai in Fountain Valley which was delivered during the quarter.
“Overall, the future appears to be bright for the office market in Orange County. As we move into 2014, we expect the amount of vacant and available space to continue to decrease, which will prompt continued positive absorption and more increases in lease rates,” says Holdner.
Increasing Occupancy and Decreasing Supply Drives Industrial Values Up The Orange County industrial market continued to display promising numbers in the first quarter of 2014, posting over 529,000 square feet of positive net absorption during the quarter.
“Overall, the Orange County industrial market has posted over 7.2 million square feet of positive absorption since Q2 of 2010,” says Holdner. “We anticipate that net absorption will continue its positive trend in 2014.”
Both vacancy and availability continued trending downward in Q1, as the 3.96 percent vacancy rate seen at the close of the quarter was a decrease of 16.10 percent when compared to Q1 2013. “We haven’t seen the vacancy rate this low since the fourth quarter of 2008,” explains Holdner. In addition, availability of direct/sublease space being marketed ended the first quarter at 5.87 percent, a decrease of 16.97 percent from 2013’s Q1 rate of 7.07 percent.
“As net occupancy continues to improve and availability declines, lease rates will continue to rise, which is a strong indication of future stability,” explains Holdner.
The average asking triple-net industrial lease rate checked in at $.62 per square foot per month, one cent higher than the previous quarter and four cents higher than the $.58 rate seen in Q1 2013.
“We are forecasting that lease rates will continue to rise, ending 2014 at around $.65 per square foot per month,” predicts Holdner.
As lease rates rise, sale prices are also gradually ticking up, notes Holdner, who attributes this trend to the diminishing supply of industrial product for sale in Orange County, particularly in buildings smaller than 100,000 square feet.
“Currently, only around 2.0 percent of the inventory in the Orange County industrial market is available for sale. This lack of supply will continue to place upward pressure on pricing going forward,” he explains.
The average asking sales price in the first quarter of 2014 was $147.55 per square foot, a 5.51 percent increase from the previous year’s price of $139.85.“Overall, we continue to be optimistic about the Orange County market,” says Holdner. “We continue to see improvement in both the office and industrial markets, and we anticipate positive gains moving forward, provided job creation continues and consumer confidence stabilizes.”
About Voit Real Estate ServicesVoit Real Estate Services is now an 11 office commercial real estate firm that, through its brokerage and real estate management professionals working together, provides strategic property solutions tailored to clients' needs. Combining more than 40 years of expertise in brokerage, investment advisory, financial analysis, market research, real estate management and tenant advisory, Voit provides clients with forward looking strategies that create value for their assets and portfolios.
Voit is a privately held, debt-free firm that has successfully navigated numerous market cycles since 1971 and currently employs more than 250 people. Voit has owned, developed and managed over 55 million square feet of commercial real estate, participated in $1.4 billion of construction projects and completed over $40 billion in brokerage transaction volume. Further information is available at www.voitco.com.
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