O.C. Commercial Vacancy Rates Down in June : Real estate: The decrease--most notable in the industrial sector--reflects growing demand for existing space.

Vacancy rates for most segments of Orange County’s commercial real estate market have fallen in recent months, particularly for manufacturing and distribution space, according to a report released Thursday.

The vacancy rate for manufacturing and distribution space stood at 11.8% at the end of June, compared to 14.3% at the same time a year ago, according to a report by Grubb & Ellis Commercial Real Estate Services in Newport Beach.

The decrease reflects growing demand for existing space, since little new space has been built in the past year, said Scott Read, the firm’s industrial properties specialist.

“You’ve got a pretty constant demand for the product, but without any new development,” Read said. “You’re starting to see rents creep up as a result.”

The vacancy rate for office space also fell, standing at 17.5% at the end of June, compared to 17.8% a year ago.

At a market low point two years ago, the vacancy rate was 19.6%.

Read said that any figure below 10% tends to foster more building. Not surprisingly, several projects are planned for the southern part of the county, he said.

The decrease is significant, said George Economos, a senior vice president at the firm, since it shows steady demand even though no new office space has been built in the past year.

“Landlords are discussing renegotiation with existing tenants much earlier in their lease terms, and many tenants are deciding to stay put,” Economos said.

In contrast, new building by large firms has added 2.5 million square feet of retail space in the county in the past year, with almost all of it being leased before completion.

Three centers, with a total of 548,000 square feet, are under construction in Irvine and Huntington Beach, while an additional 2 million square feet of retail space is planned for centers in Aliso Viejo, Irvine and San Clemente.

Despite the new building, the retail vacancy rate at the end of June was 6.3%, roughly the same as the 6.2% it stood at a year ago.

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Industrial Vacancy Rate Declines

The Orange County industrial space market improved in the second quarter, with a 2.5-percentage-point drop in the overall vacancy rate. The county’s southern portion showed the most improvement, 4.7 percentage points. Second-quarter rates:

Industrial Space

Note: Includes manufacturing and distribution space larger than 10,000 square feet. Excludes research and development, multi-tenant and build-to-suit space.

1994 1995 Airport area 15.2% 12.1% South 11.9 7.2 Central 12.8 12.3 North 13.1 9.9 West 17.6 15.0 Total 14.3% 11.8%

Improving Trend

Although flat for the last two quarters, the county’s overall vacancy rate for industrial space has declined substantially since the beginning of 1993: Second quarter 1995: 11.8%

Source: Grubb & Ellis; Researched by JANICE L. JONES / Los Angeles Times