The Orange County office market continued its healthy performance in the second quarter, indicating market stabilization and a positive trajectory, with possibly the most significant trend being the current progression of average asking lease rates.
Lease Rate
The average asking lease rate, after increasing to $1.97 per square foot in the first quarter, jumped an additional 5 cents, ending the quarter at $2.02 per square foot. The increase in rental rates crosses submarkets, building classes and types, and indicates wide-based growth.
It was the first time the average asking lease rate topped the $2 mark since 2010 and the largest quarterly escalation since early 2007.
The Greater Airport Area and South Orange County submarkets saw the most growth from the previous quarter, but every market in the county recorded quarterly increases in their average asking lease rates.
The wide-based growth is evidence that it’s no longer isolated and specific to select submarkets as it was in previous quarters. CBRE Econometric Advisors projects that lease rates will grow 3.9% over the next 12 months.
Absorption
Additionally, Orange County has already reached nearly 1.2 million square feet of positive net absorption for the year. A significant portion of that was caused by the deliveries of the 469,000-square-foot Hyundai Motor America building in Fountain Valley in the first quarter and the 380,000-square-foot Pacific Investment Management Co. building in Newport Beach in the second quarter.
Approximately 848,000 square feet of positive net absorption were generated during the quarter. The Greater Airport Area continued to be the most active submarket in the county, accounting for approximately 733,000 square feet of the county’s net absorption.
Central and North Orange County have been the least active submarkets but are expected to gain momentum as tenants choose to lease the more affordable space in those submarkets.
With the increase in net absorption, the vacancy rate decreased from 17% in the first quarter to 16.5%.
The Central OC submarket continued to hold the highest vacancy rate, ending the quarter at 16.9%, up from 16.1% from the first quarter.
The South OC submarket recorded the lowest vacancy rate at 8.9%, dropping from 9.5% in the first quarter.
The overall vacancy rate is expected to remain within the 12% range throughout the remainder of the year.
Analysis provided by CBRE Research
