Demand for Orange County office space will be about the same this year and weak demand for industrial space could extend into the mid-1990s, even if commercial real estate activity improves nationwide, said a real estate forecast released Wednesday.
Little change is expected from 1992 conditions, when the county's average vacancy rate for office space climbed almost two percentage points to 21.1%. Vacant industrial space rose one percentage point to 18%, according to a nationwide study by the Society of Industrial and Office Realtors.
To no surprise, construction of industrial and office space suffered the biggest blow. It fell 100% since, except for a few small projects, it was nonexistent in the county, the study showed.
Office usage in Orange County fell for the third consecutive year in 1992 as employers continued to cut their staffs and some companies left the region for lower wages, taxes and housing costs. In addition, banks and savings institutions continued to be tight with credit, and many were divesting their portfolios of commercial real estate assets.
Although there were signs as the year ended that more buildings were being filled, the rents were lowered to ensure that vacancies also would be reduced.
"Absorption is occurring and vacancies are going down," said Stan Mullin, senior marketing consultant at Grubb & Ellis' South County office in Irvine. "But a lot of times rents are 50% lower than from the previous tenant. The general tenor is that 1993 is probably going to not be a worse year, but it probably will be flat."
The outlook is better nationwide. The average vacancy rate for offices around the country declined slightly to 18.6%, from 18.9% a year earlier. The real estate group said the improvement was because of job growth and an increase in small businesses.
"Small business will pull us out," said LR Sanders, senior vice president at Grubb & Ellis' Anaheim office and president of the society's Orange and South Counties chapter. "It won't be the big boys gearing up and and taking large amounts of space."
The nation's lowest office vacancy rate was in Jackson, Miss., at 6.7%. Vacancies also were lowest in some Sunbelt markets such as Gainesville, Fla., and Marin County in Northern California, as well as Midwestern cities such as Columbus, Ohio and Gary, Ind.
Although St. Louis had the highest vacancy rate at 28.6%, the most troubled office markets were in the Pacific states and in the Northeast. The Los Angeles-Central area, which includes downtown, had the nation's third-highest vacancy rate at 26.7%.
Industrial space vacancies also were much higher in Southern California than elsewhere. Vacant industrial space nationwide increased to 10.9%, up from 10.2% a year earlier.
While Wilmington, Del., posted the highest vacancy rate nationwide at 39.6%, three regions of Southern California also cracked the Top 10 areas of oversupply. The San Gabriel Valley area had a vacancy rate of 28%, San Diego was at 20% and San Bernardino was at 18.6%.
Orange County, at 18%, wasn't far behind. Job losses in aerospace and defense-related businesses also have taken a toll. And many properties have taken up to 15 months to lease or sell--and then at discounted prices. What growth does occur will be from Los Angeles companies moving south or from local companies relocating or expanding, Sanders said.
O.C. Fifth in Office, Industrial Vacancy Rates
Orange County has the fifth-highest office and industrial vacancy rates in California. The county is 2.5 percentage points higher than the national average in office vacancies and 7.1 percentage points higher in industrial vacancies. Office Vacancy Rates: 1. Central Los Angeles: 26.7%% 2. San Bernardino County: 23.1% 3. West Los Angeles: 22.7% 4. South Bay: 22.2% 5. Orange County: 21.1% 6. San Gabriel Valley: 21.0% 7. San Diego: 17.0% 8. Oakland: 16.4% 9. San Francisco: 15.5% 10. San Mateo: 15.3% U.S. average: 18.6%
*Industrial Vacancy Rates: 1. San Gabriel Valley: 28.0%% 2. San Jose: 20.0% 3. San Diego: 19.2% 4. San Bernardino County: 18.6% 5. Orange County: 18.0% 6. South Bay: 17.3% 7. Contra Costa County: 11.0% 8. Sacramento: 10.2% 9. Central Los Angeles: 9.8% 10. Fresno: 9.4% U.S. average: 10.9% Source: Society of Industrial & Office Realtors; Researched by DALLAS M. JACKSON / Los Angeles Times