Voit’s Q217 OC Office Market Report is out!
The Orange County office market continued to display sound fundamentals in the second quarter of 2017, supported by an almost 3% drop in the overall vacancy rate, a 6% increase in average asking lease rates and a surge in both transaction volume and velocity.
Orange County is now clearly a “landlord’s market” across all asset classes and we expect this environment to continue for the foreseeable future, given the health and diversity of the local economy. Rumors of a “correction” in the real estate markets and the greater economy have persisted for some time now, but this prophecy has yet to be fulfilled or even truly defined. While it would be reasonable to expect a downturn in the near future based on the length of the current recovery / expansion when compared with previous cycles, we now find ourselves in uncharted territory defined by a historically slow and steady economic recovery.
Traditional indicators of a downturn seem muted at best from our perspective as businesses both large and small are hiring and contemplating expansions and consolidations. With the election behind us and federal monetary policy generally stable, business and real estate owners seem to have a relatively clear view of the future and the confidence to make well informed, long-term commitments. A fair amount of uncertainty still exists when it comes to inflationary pressures and the local implementation of government policy (trade, regulation, etc.), but this concern has yet to impact tenant and buyer activity as space continues to be absorbed at an aggressive pace.
The current landscape presents opportunities for developers/investors, landlords, tenants, buyers and sellers alike:
Developers have an extended window to identify tenant demand and workplace trends and to deliver innovative solutions. These solutions will likely take the form “value-add” and adaptive reuse opportunities where older, functionally obsolete product is being transformed into higher and better uses.
Landlords have an opportunity to continue to push rents and improve tenant retention by enhancing onsite amenities / services while providing flexibility for their tenants.
Tenants are now looking at longer leases, allowing them to extract maximum economic concessions and control their overall occupancy costs. They are focused on efficiency and intelligent workspace design to maximize recruitment, retention and productivity, much more than in previous cycles. Flexibility to expand and contract over time is expected to remain a key driver for tenants as technological advancement continues to change the overall business environment.
Buyers, both investors and users, have been taking advantage of the low cost of capital and more lenient underwriting criteria to acquire stabilized long-term investments, and we anticipate this trend to continue. Business owners will also look to purchase their own properties in an effort to stabilize their occupancy costs and invest in their own specific improvements during this attractive interest rate environment.
For more information on the Orange County office space market and how to capitalize on real estate opportunities to grow your business, contact Stefan Rogers (949.263.5362 / firstname.lastname@example.org.
Click HERE to download Voit’s Q2 17 Orange County Office Market Report.