Recent brokerage reports hint at signs of stabilization for Orange County’s office market—with third-quarter leasing activity jumping 23% from the year prior—and it’s not just low- or mid-rise buildings seeing an occupancy boost.
While newer, low-rise developments have fared better over the past few years than their office tower counterparts, the latter product type appears to be making a modest comeback.
Availability in local buildings with 10 stories or more fell to 26% in the third quarter from a high of nearly 28% at the start of the year, according to CoStar Group Inc.
There were 1.9 million square feet of deals signed during the third quarter in OC, according to tenant brokerage Savills.
The increase stemmed from deals by companies in the tech, advertising, media and information sector.
A report from CoStar Group, meanwhile, noted office availability in the county has dropped from 17% to 16.6% over the past six months.
“Tenants are gaining confidence in how they can productively utilize their office space to attract and retain talent while simultaneously growing the company’s culture and profitability,” Savills Vice Chairman Steve Card told the Business Journal.
Adding to OC’s office stabilization is a decrease sublease availability, which hit record highs during the pandemic as employers shifted to a more remote workforce, according to Card.
Local Deals
A handful of local deals have contributed to the recent office tower comeback in the past few months.
Samsung leased more 43,000 square feet at 3 MacArthur Place in Santa Ana, while Optima Tax Relief nabbed a roughly 38,000-square-foot spot at the nearby Griffin Towers complex in the South Coast Metro area.
In Irvine, Alleviate Financial secured a 31,000-square-foot sublease at Jamboree Center, while Touzi Capital subleased a 27,000-square-foot space at Park Place.
Other third-quarter high-rise deals included marketing firm Max Market Pros’ sublease of a more than 20,000-square-foot office at the 2600 Michelson tower in Irvine; background check company Accurate Background’s new lease of a roughly 22,000-square-foot space in Irvine’s 21-story 200 Spectrum Drive; and aerospace and defense firm Ducommun’s lease for a 22,500 office at Plaza Tower in Costa Mesa.
In addition to the high-rise return, low-rise buildings continue to generate interest among local firms.
Engineering consultant XP Power in June signed a lease for a 26,680-square-foot space at The Market Place Center in Irvine. The next month, the University of California, Irvine secured a lease for 26,897-square-feet at UCI Research Park.
The only new lease that surpassed 100,000 square feet last quarter is Boot Barn Holdings Inc.’s (NYSE: BOOT) full-building deal at Spectrum Terrace, spanning 116,261 square feet of office.
Outlook
Though third-quarter leasing activity was up from last year, the broader economic environment has been a bane to deal volumes, Savills officials said.
“Macroeconomic concerns, higher inflation, and a slowdown in hiring have continued to result in most occupiers taking a wait-and-see approach, which has led to a slowdown in office space demand relative to pre-pandemic,” according to a Savills report.
The ongoing slowdown, however, could induce “positive momentum in future quarters,” Card said.
“It may not be a dramatic increase, but it will be measured and likely headed in a good direction.”
The optimism partly stems from OC’s diverse tenant base, supply of new offices with “on-trend” health and wellness amenities and low-debt among landlords.
“We aren’t immune to disruption but currently, we are well-positioned for sustained growth,” Card added.
