The Orange County office market continued to be relatively stable through the first half of the year.
The first quarter had almost 750,000 square feet of positive absorption, but demand in the second quarter slowed, generating roughly 83,000 square feet of positive net absorption.
That brings the year-to-date net absorption to about 833,000 square feet. It was Orange County’s 13th consecutive quarter of positive absorption, although it marked the lowest quarterly total since the fourth quarter of 2010.
Several sizable medical companies are currently in the market for new space, while technology firms are seeking “creative” office space, though demand for creative offices seems limited by the short supply in the county. Many of the smaller law firms across OC were growing, while larger firms remained stable.
Vacancy Rate
The vacancy rate for Orange County remained stable through the first half of the year. The activity, after the high volume of net absorption in the first quarter, slowed and kept vacancy numbers similar to the first quarter.
North and West Orange County saw slight drops in vacancies, with approximately 100,000 square feet of positive absorption combined.
Countywide numbers remained stable, posting an unchanged vacancy rate of 12.3%. Large movements in the county balanced each other out.
HD Supply moved out of 56,000 square feet of space in Costa Mesa, while UGL Services Equis Operations Co. moved into 22,108 square feet in Newport Beach. SPEC Services Inc. moved into 53,347 square feet in Fountain Valley from roughly 35,000 square feet of office space in Westminster.
Movement
Many positive signs remain in the county, despite the slowdown in absorption. Lease rates have declined for the past few years, but select areas in the county saw rental bumps of between 5 cents and 25 cents per square foot over the last quarter.
Those areas include many of the creative low-rise office buildings in Irvine, as well as class A high-rise buildings in core submarkets, such as the Anaheim Stadium Area, Irvine Spectrum and parts of South Orange County. The increasing interest
and tenant demand for creative offices
has also driven up rental rates in those markets.
The countywide average asking lease rate rose from $1.91 per square foot to $1.92.
The recent rise in the overall lease rate marks only the second increase in the past four years.
CBRE forecasts net absorption to fall 1.2% by year-end. Companies such as Pacific Investment Management Co., which plans to move, will cause a lag in the absorption.
Overall market activity is headed in the right direction, and demand is starting to pick up, but it may not be reflected in the numbers in the coming months due to the move-outs and any downsizings in the pipeline.
Construction
Construction activity in the county remains light, despite the few large build-to-suit projects scheduled to finish at the end of the year.
The site of the new Pimco building in Newport Center totals approximately 380,000 square feet and is due to be completed by October. Completion of the new 469,000-square-foot Hyundai Motor America headquarters in Fountain Valley is expected by year-end.
In Buena Park, a build-to-suit for a carpenter’s union training facility totaling 107,000 square feet is expected to be completed by the third quarter. Additionally, Pacific Dental’s conversion of a 139,000-square-foot industrial building into its new offices was completed in the second quarter.
Analysis and data by CBRE Research.
