Office construction and leasing should reach an all-time high in Orange County this year, but a growing vacancy rate will force developers to continue offering incentives to lure occupants, according to forecasters at Coldwell Banker, the county's largest commercial real estate brokerage.
Coldwell officials also are predicting that retail construction, mirroring the office sector, will have a banner year--more than doubling last year's 1.7 million square feet of new construction--and that development of industrial plants will slacken only slightly from 1985's brisk pace.
Upscale research and development facilities will continue to lead the industrial construction field and, largely because of the 1985 building boom, already represent--for the first time in county history--more than half of the industrial space on the market, the Coldwell officials said.
In a presentation at the company's annual real estate outlook conference Tuesday, Scott Perley, Coldwell Banker vice president, estimated that 5 million square feet of new office space will be completed in the county this year, beating 1985's record 4.2 million square feet by 19%. Developers have projects in the planning stages that would continue the blistering pace through the decade, he said.
And during 1986, Perley estimated, 3 million square feet of new office space will be leased, up 25% from 2.4 million square feet in 1985. Despite the higher level of leasing, the county's office vacancy rate, now hovering at 19.3%, will continue to rise "into the 20s," Perley predicted. To fill the new space, he said, landlords will continue offering bonuses such as free parking and up to 10 months of rent-free occupancy for companies willing to sign five-year leases. He predicted that it will take three years for all the office space added to the county inventory this year to be absorbed.
Still, Perley said, Orange County's office vacancy rate is lower than in most other parts of the country, and developers will continue building, largely because of the continued availability of financing and the county's expanding business base.
Perley said the county now has almost 34 million square feet of office space, up 89% from 18 million square feet in 1979. And there are 33 million square feet of additional office projects on the drawing boards, he said.
Slight Industrial Decline
On the industrial front, there will be "still a significant amount of new construction, but not quite at the same pace as last year," said Coldwell Vice President Jim Bell. He predicted that leasing and sales of available space will peak sometime this year, leading to a slight decline in industrial development.
Bell said that recent trends, spurred by the emergence of the Irvine Co.'s Spectrum technology park in east Irvine, mean that buildings designed for research and development-oriented companies are in "plentiful supply" while there is "a scarce supply of basic manufacturing and warehouse space" in the county.
Coldwell Banker Vice President Robert A. Peterson said 1986 also "will be a peak year for retail development. We will complete about twice (the construction) that we completed in 1985."
The vast majority of the retail development in Orange County, Peterson said, involves mid-size, open-air shopping centers rather than giant regional malls, which he termed "glamour projects." The only mall project slated for 1986, he said, is the 1-million-square-foot expansion of Costa Mesa's South Coast Plaza.
The expansion and 19 smaller shopping center development and renovation projects, Peterson said, will add a total of 3.8 million square feet of retail space to county inventories.