Tale of Two Tenant Types for Office Market [Orange County Business Journal (CA)]
Copyright: | (c) 2011 CBJ, L. P. |
Source: | Proquest LLC |
Wordcount: | 842 |
REAL ESTATE: Small bargains; premiums start at 50,000 sq. ft.
Big business might hold the upper hand in many aspects of the national economy, but smaller-sized companies call the shots in
OCs office market, which totals about 100 million square feet of space, now counts a vacancy rate of about 17%, according to a survey of local brokerages' thirdquarter market reports.
Most data from area brokerages show vacancy rates falling by a half a percentage point or less from the past quarter, and by about two percentage points over the past year.
Vacancy rates higher than 10% are generally considered to be a sign of a market favorable to tenants rather than landlords.
Vacancy rates here have topped 1 0% since late 2007.
For large blocks of space, however, there's said to be a decidedly slimmer amount available than a year or two ago. That essentially makes it a landlord's market for that type of office space, according to area brokers.
It's created a tale of two tenant types.
For office space 50,000 square feet and over, there's been a little bit of a price premium recently for the best buildings, said
A typical floor in an area high-rise office runs about 25,000 square feet.
Monthly rents on average run about
There's no such premium for smaller tenants, which make up the bulk of OCs tenant base.
"For bread-and-butter deals, 3,000 to 10,000 square feet, there's an amazing amount of availability, and those (landlords) are more challenged," Strasmann said.
Brokers who exclusively represent tenants say the two-tiered dynamic has intensified in the second half of the year.
"For those smaller (companies) that can commit, long term, for a full floor or less, the world is theirs," said
Long-Term Challenge
Getting smaller companies to commit to longer leases amid the current economic climate presents a challenge to property owners.
"Without being able to predict what will happen from one month to the next, many businesses are refraining from pursuing growth strategies, such as hiring more employees and renting more office space," noted the third-quarter market report from the
"Landlords recognize this, and they're being aggressive - it's becoming a 'captureeverybody-at-all-costs,' mentality," Travers' Parker said. "The situation changes a little for larger companies; there's a scarcity of product. If you need three or four floors, there's only a handful of opportunities."
A number of larger-sized leases inked over the past quarter took prime office spots off the market for other big tenants.
It plans to move its headquarters to the building next year, after the building's main occupant, the
Near
It now leases about 470,000 square feet at
Among higher-end tenants announcing an office move last quarter, law firm
The firm, which counts about 30 local lawyers, will be moving from the
Other area tenants said to be in the market for 100,000 square feet or more office space include
Breather
Even with the larger leases signed of late, transaction volume took a bit of a breather in the third quarter.
Leasing activity for die quarter totaled 1.7 million square feet, down about 9% from a quarter ago.
That's about 8% below year-ago levels, according to data from the
Net absorption increased for the fifth straight quarter, according to Colliers' data, which reported positive absorption of 562,800 square feet.
90-
Local executives are expected to keep a close eye on leasing activity going into 2012.
"The next 90 days should be a pretty telling story about how strong the market is performing,"
Strasmann: smaller leases are "bread and butter" here
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