Despite a boost in leasing activity during the second quarter, the local office market is still in a deep state of consolidation, with availability recently hitting a new record.
Companies signed 1.5 million square feet in OC office leases during the second quarter, according to an office report from tenant brokerage Savills, marking a 39% increase from the 1.1 million square feet signed during the first quarter.
Of the top 10 deals inked during that time frame, just one was a renewal, a notable improvement for the office market from prior quarters. Six of the top 10 deals in the first quarter were renewals, according to Savills.
Still, the signs of employer confidence have done little to move the needle in terms of office metrics, with office vacancy hitting a historical high of nearly 25% in the second quarter, up 160 basis points from the first quarter.
“Despite the increase in leasing activity, macroeconomic concerns such as recession fears, increasing interest rates, and a slowdown in hiring have caused occupiers to have a wait-and-see approach which has led to a slowdown in office space demand,” the Savills report said.
“This has also led to many tenants downsizing square footages and/or subleasing their existing office space while landlords remain aggressive to preserving occupancy.”
Sublease Availability
Sublease space in Orange County also continues to climb to historic highs, reaching 4 million square feet in June, up nearly 25% from 3.2 million square feet last year.
Four notable local companies added nearly 185,000 square feet of sublease space during the second quarter, led by engineering and construction giant Fluor Corp., which listed nearly 81,000 square feet of space at its local headquarters in Aliso Viejo at 3 Polaris Way.
Fluor once owned 2 and 3 Polaris Way before selling the buildings totaling 200,000 square feet in 2016 to Dallas-based Invesco Real Estate.
In Irvine, real estate lending software firm ServiceLink is marketing 62,850 square feet of space, while retail tech company Nogin Inc. and software firm Syspro are adding a total of 40,800 square feet to the market in Tustin.
Nogin (Nasdaq: NOGN), a technology company that aims to help fashion-focused retailers and other businesses grow their e-commerce operations, has seen its share price drop after going public via a reverse merger with a SPAC (special purpose acquisition company) last year.
Its stock was hovering around $1 as of last week, well below the $10 listing price for its SPAC partner.
During the first quarter, Nogin’s net revenue fell 34% to $16.7 million from $25.2 million last year as a result of fewer sales and a “deliberate scaling back of certain customers in order to focus on higher-margin revenues,” the company said in a May statement.
Sublease space is increasing in OC quarter-over-quarter albeit on a slower basis, according to Savills, with sublease volume up just 0.2% in the second quarter, compared to 2% to 3% in the prior quarters.
Growth Mode
On the expansion front, companies in growth mode of late have stemmed from the healthcare and TAMI industries, or technology, advertising, media and information.
The largest lease inked during the second quarter was by Axonics Inc. (Nasdaq: AXNX), which signed a 145,960-square-foot deal to relocate its headquarters to the Sand Canyon Business Center in Irvine, a deal first reported by the Business Journal.
