Activity in the Orange County office market shows little signs of slowing, as companies continue to expand their footprint
The Orange County office market is expected to continue its upward trend through 2018, with supply constraints and conversions from industrial to other property types playing key roles in tightening Orange County’s fundamentals. Vacancies are low, demand is consistently strong, and it’s still a landlord’s market. Tenants looking for industrial space face one of the tightest markets in the country, as growth in traditional import logistics and e-commerce continues to drive strong demand. This consistent demand and a lack of quality space have pushed asking rents higher. The Orange County industrial market continues to benefit from the rise of e-commerce as retailers strive to respond quickly to demand throughout Orange County.
Strong market fundamentals and a diverse tenant base make the Orange County office market one of the nation’s most attractive destinations for investors, developers, and businesses. Expect to see rents continue to climb as older buildings get brought back to life and office owners find creative ways to offer their tenants more amenities.
LEASE RATES – New space coming online could hamper growth in rental rates. Additionally, if leasing continues to be sluggish and Class A landlords are asking upwards of $4.00 per square foot, demand will likely be suppressed. Expect an overall modest increase in pricing in the coming quarters. Lease rates will continue to firm up, and we expect them to slightly increase over the coming year. Expect the average asking office lease rates to increase by less than 3%.
VACANCY – With increased market activity, building conversions and upgrades have added new, higher quality space to the market. Continued low vacancy and competition for space will result in higher rents across most submarkets. With the availability of existing office space declining, we expect the vacancy rate to drop to 11.20% by year end. The last time Orange County office market vacancy rates were below 10% was in 2Q 2017.
OVERALL – With the Orange County office market activity gaining momentum in the first half of 2018, positive absorption should continue, and with few new deliveries in the pipeline to apply upward pressure on vacancy, the market will continue to stabilize. Tenants in the market looking for 25,000 to 50,000 square feet will continue to be the market movers. Activity in the Orange County’s office market shows little signs of slowing, as companies continue to expand their footprint by taking up space in the Airport Area and South County submarkets. Records for sale prices per square foot for commercial buildings continue to be set, and net absorption figures continue to increase. We should also see an increase in leasing activity as many short–term deals come up for renewal. As job creation continues and consumer confidence stabilizes, the office market will continue to recover.