DEAL BAROMETER
Potential Floor Established on Rental Rates in Second Quarter
After more than a year of decline, Orange County’s overall rental rate increased nominally in the second quarter by 11 cents to $22.58 per square foot per year.
The increase could mean that rates have hit bottom and will continue to rise. The ongoing decrease of large contiguous blocks of space appears to have aided the slight uptick in rents.
Large blocks,contiguous blocks of at least 100,000 square feet of space,dropped an additional 15% to only 11 blocks in the second quarter. This marks the fifth consecutive quarterly decrease in contiguous space availability.
Overall leasing activity totaled more than 2 million square feet for the quarter and nearly 4.3 million square feet year-to-date. Leasing was down 9.4%, versus last quarter and flat compared to a year earlier. The quarterly decrease was primarily driven by a 28% drop in leasing activity in the John Wayne Airport area.
Countywide, demand for space primarily appeared to be led by financial and business services companies, though activity in the technology sector appears to have increased, too.
After peaking into the 20% range in the past year, availability rates declined for the second consecutive quarter. The overall availability rate decreased to 17.5%, a 17% drop from a year earlier and a 5% decline from the previous quarter.
Little new construction is under way for completion in the near future. That means demand likely will catch up with supply and aid in driving rental rates up.
Investment Activity Booming
The investment market in Orange County remains aggressive with a lot of capital still chasing deals. The county ranks third among West Coast metropolitan areas in terms of volume traded.
There was about $1.3 billion of sale activity in the area in the past year. Price per square foot continues to increase to near $170, according to Real Capital Analytics.
Unemployment Near Low
Unemployment in Orange County was 3.2% in May, down from 3.6% in January. Total nonfarm employment increased by nearly 5,000 jobs in the past year, with much of the growth from financial, construction and leisure companies.
Industries that lost footing included manufacturing, government and information services.
Highlights
Availabilities declined in North County, but this didn’t have the expected effect on rental rates.
Overall availabilities dropped 1.5 percentage points to 10.7%,the lowest of all of the county’s submarkets,yet overall rental rates dipped 25 cents to $18.28 per square foot per year, also the lowest.
At 26.5%, West County class A space continued to be the highest availability rate in the county.
In sharp contrast, other classes of space in West County reported one of the county’s lowest rates at 8.6%. Even so, overall rents rose 14 cents to $21.54, primarily driven by a 48-cent gain in class A rent to $23.08.
South County showed the greatest change in overall availability,down 3.9 percentage points, or 18%, to 17.9%.
This decrease was driven by the market’s “other” class of space, which declined 5.4 percentage points to 16.5%.
,Analysis by Studley.
