Office Vacancy Rate Fell in ‘96, Study Finds

NEWPORT BEACH — Fueled by the expansion of local companies, vacancy in Orange County’s office market tightened up considerably last year. Close to 1 million square feet of office space was taken off the market in 1996, 38% more than the previous year and 10 times more than in 1994, according to a report released Monday by CB Commercial Real Estate Group.

This activity dropped the county’s vacancy rate two percentage points to 12.6% for the year, just below the national average for metropolitan areas. The shrinking availability of space also began to push rents up.

The biggest rental rate jumps occurred in areas largely controlled by the Irvine Co. Rates in the posh Newport Center, where vacancy is under 5%, jumped an average of 19%, to $2.37 per square foot per month; rent for offices in the Irvine Spectrum climbed 17%, to $1.77.

Three-quarters of the leasing activity this year occurred in the John Wayne Airport area, much of that in the South Coast Metro area next to South Coast Plaza. South County also was very active--35% of all vacant space there was leased last year.

Brokers say that newer high-rise space will be a lot harder to find in these areas of single-digit vacancy and that it will cost substantially more to rent. Gone already are incentives such as free rent, parking and tenant improvements.

“The concessions have gone away and the underlying cost of occupying space is now greater in the airport [area] and South County,” said Don Nourse, a senior vice president with the Newport Beach office of CB Commercial.

These anticipated jumps in rents have prompted developers--including Trammell Crow Co., the Irvine Co. and Parker Properties--to haul out plans for new multi-tenant office buildings. Brokers are laying odds that at least one of these projects will begin construction this year.

One area that was resistant to improvement last year was central Orange County, which makes up a quarter of the Orange County office market. In this area, which includes parts of Santa Ana, Orange and Anaheim, more office space was actually put back on the market than leased last year.

However, CB predicts that the Disneyland expansion and Anaheim tourist district improvements should begin to cut into the area’s 22% vacancy rate in the near future.