Demand for office real estate inching up

Alicia Robinson

Office and industrial properties around John Wayne Airport fetch some

of the highest rents in Orange County, and experts predict gradual

increases in those rents and decreases in vacancies in 2005,

according to a study released today.

Demand for office and industrial space in Orange County and

Southern California as a whole grew slowly this year and will

continue to grow next year, which is good news for businesses, said

Delores Conway, director of the Casden Real Estate Economics Forecast

at the USC Lusk Center for Real Estate.

“I think that we are seeing slow but steady growth, and that’s

very positive for our economy,” Conway said. “Orange County, I think,

had one of the best improvements in terms of the decline in overall

[office] vacancy rate, from 14% to 12%.”

The study reported that the John Wayne Airport submarket, which

includes Costa Mesa and Newport Beach, collected the county’s highest

rents and had the strongest growth in the amount of occupied office

space in 2004.

For the third quarter of this year, according to the report,

airport-area industrial rents were at 88 cents per square foot. The

county average was 72 cents per square foot. Office rents were $2.36

per square foot, compared with a county average of $2.28 per square

foot.

Office and industrial vacancy rates around the county are expected

to continue dropping, and rents are likely to climb further in 2005,

in part because little new office or industrial space will be added,

Conway said.

The airport submarket made up 44% -- nearly 900,000 square feet --

of the growth in occupied office space in the county during the first

three quarters of this year, according to the report.

Growth has been slow since 2003, but now companies are starting to

add jobs, thus need more space, said Bill Halford, president of

office properties for the Irvine Co.

“We are seeing vacancy rates begin to rapidly decline, which is

leading to a relatively tight office market,” Halford said. “For the

most part, over the past several years, companies have been in a

shrinking mode, not in a growing mode, and that obviously has a

negative affect on the health of the office market.”

Other signs of economic recovery are an expected job growth of 2%

in Orange County in 2005 and the continuing investment in Southern

California business real estate, Conway said. Investment fund

managers are now using capital to buy office and industrial

properties, and so are business owners.

“They’re buying a fair number [of properties] in Orange County,

but it’s everywhere,” she said.

Conway said the Orange County economy improved overall this year,

and she expects the upswing to continue. Halford agreed.

“The outlook is, we hope that we continue to see this improvement

in job growth, which results in ever-increasing occupancy levels, and

that’s ultimately what leads to a healthy market,” Halford said. “It

looks like it’s headed in that direction, but it’s never totally

predictable.”

* ALICIA ROBINSON covers business, politics and the environment.

She may be reached at (714) 966-4626 or by e-mail at

[email protected].