Commercial real estate is recovering across Orange County, with vacancies dropping steadily for the past 1½ to two years and lease rates starting to turn around, according to recent reports by brokerage Voit Real Estate Services.
Owners of industrial and research and development properties saw rents climb during the three months ending in June. Office building owners raised their asking rents for the first time in about five years in the spring. Voit projects rising rents for the rest of the year for retail, office and “flex” properties, which are industrial buildings used as offices.
“All segments of the market are doing really well,” said Jerry Holdner, vice president of market research for the Newport Beach brokerage. “It’s not anything like we saw in ’05 or ’06, but the market is improving.”
Construction of office buildings and retail centers also increased in the spring quarter.
Voit noted, for example, that 1.4 million square feet of office space was under construction by June, due mainly to the new Hyundai headquarters rising along the 405 freeway in Fountain Valley and the new PIMCO headquarters going up at Newport Beach’s Fashion Island.
In addition, more than 900,000 square feet of retail space was under construction, more than half of it in north Orange County.
“The overall slowdown in construction has eased,” Voit’s retail market report said.
Commercial real estate tenants leased almost 1.3 million square feet more space than they vacated in the spring, with occupancy up significantly in every sector but industrial, due to a lack of vacancies in that sector.
Highlights of Voit’s spring quarter reports include:
- Office buildings: Vacancies dropped to 12.5 percent of total space, down for a fifth consecutive quarter. The average office vacancy rate was just under 16 percent at the end of 2011. Average asking rents increased for the first time in five years to $1.89 per square foot. That’s up from the average asking rent for the previous three quarters, but down from the same quarter a year earlier.
- Retail: Vacancies fell to 5.5 percent, down from 6.1 percent in the spring of 2012. Asking rents continued to fall for a fourth consecutive quarter, dropping to an average of $1.82 per square foot. Voit forecast, however, that lease rates will turn around and rise gradually in the next three quarters.
- Industrial: Vacancy rates have dropped off and on for the past two years, falling to 4.7 percent in the spring. Rent has climbed steadily, rising to 59 cents per square foot, vs. 54 cents a foot in the spring of 2011. That amounts to an additional $5,000 a month in rent on a 100,000-square-foot space.
- Flex properties: These are industrial buildings used for office space, about a third of which is located in the Irvine Spectrum. The flex vacancy rate fell to 12.3 percent, down from 15.6 percent a year earlier and nearly 20 percent in the depth of the recession. Rent fell to $1.66 per square foot, but Voit projects that rents will rise in the next three quarters.
- Research and development: Vacancy rates fell to 7.2 percent, vs. 9 percent in the depth of the recession. Rent was 88 cents per square foot this spring, down from the winter quarter, but up from 83 cents a foot in the spring of 2012.
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