Orange County Office Vacancy Rate at 8.2%

Strong economic growth in Orange County propelled companies to lease larger quarters and, in turn, pushed the office vacancy rate to an all-time low of 8.2% countywide, according to an industry report released Monday.

The rate dropped to its lowest level since records were first kept in 1988--even though a spate of new buildings opened to handle some of the demand, according to the report by commercial brokerage Grubb & Ellis Inc. in Newport Beach.

Lease rates, meanwhile, rose to a record $2.10 a square foot during the period, 7 cents above a year ago. And the amount of office space leased during the period rose to 1.2 million square feet, a decade high.

“The numbers paint an unbelievably vibrant picture,” said Craig Jones, a Grubb & Ellis analyst who completed the report. “The market went well above our expectations for the year already, and there’s no sign of it slowing down.”

The glowing survey results prompted Jones to raise his market projections. He expects rents to surge 8% on an annual basis to $2.16 a square foot for prime office space, while prices for low-rise buildings will grow even more, up an estimated 13% to $1.59 a square foot.

The demand for office quarters, experts say, is strong enough to absorb 1.5 million square feet of space in 11 buildings now under construction.

“I’ve been in real estate about 20 years, but I don’t think we’ve ever seen such an equilibrium of supply and demand,” said Jack McNutt, a Grubb & Ellis broker. “It seems like we’re in a period that’s very balanced.”

The vacancy rate for low-rise buildings that can be used for offices or industrial purposes is not part of the main Grubb & Ellis rate. However, the so-called flex-tech buildings, going up mainly in south Orange County, are becoming an increasingly important force in the office market. The vacancy rate for such buildings was 16%, the brokerage said.

Most of the county’s growth in the second quarter was in the John Wayne Airport area, which contains the county’s largest cluster of office space, and in South County, where most low-rise office space exists.