Though monthly asking rents are largely unchanged—$2.74 versus $2.77 a year ago—landlords continue to be generous in concessions as tenants remain hesitant to make deals, according data from to Newport Beach’s Voit Real Estate Services.
There are signs of optimism for area landlords, with JLL Senior Managing Director Jeff Ingham noting consumer confidence has picked up considerably in recent weeks.
This isn’t likely to translate into improved numbers for the second and third quarter, Ingham notes, as large office users consolidate area space and some smaller tenants elect to give back their office space altogether and permanently move to remote working.
“We’re optimistic the office sector will ultimately make a full recovery as many tenants are eager to get back to the office,” said Ingham, who heads the Chicago-based brokerage’s OC operations.
Low-Rise Demand
The airport area submarket has the highest vacancy rate of all major submarkets, largely due to its “high concentration of mid-rise and high-rise” offices, notes the latest quarterly Voit brokerage report.
Low-rise buildings continue to outperform, brokers note.
Deals in the past year for low-rise buildings totaled 2.6 million square feet, twice as much as the rest of the market’s 1.3 million square feet, according to JLL.
“Tenants are attracted to the easy access, less dependency on elevators and convenient parking of low-rise buildings, which is likely to continue throughout the year,” the brokerage noted in a recent market report.
Total net absorption was at negative 1.3 million square feet during the first quarter, compared to negative 154,300 square feet during the first quarter of 2020.
Construction
Dealmaking was slightly buoyed last quarter by a blockbuster lease struck at The Press, the under-construction office project underway in Costa Mesa.
Palmer Luckey’s Anduril Industries Inc. inked a deal to occupy 640,000 square feet at the project.
There’s not much else underway in the county in terms of new office construction, save Irvine Co.’s Innovation Office Park in the Spectrum area of Irvine. Voit notes that’s good news for area landlords.
“They are already competing against a rising inventory of sublease space, and not having first-generation space in the competitive set gives them a better chance to capture more of the depleted pool of active requirements,” the report said.
Prior Recession
The pandemic’s impact has been much less severe on the office market than the prior recession, notes Ingham.
“The economy is still on fire, and the stock market is doing great, while the last recession was completely financially driven, where many tenants couldn’t afford to pay rent,” Ingham said.
JLL’s report indicates that average monthly asking rents in the airport area are down 3.6% over the past year to $3.26 FSG.
Compare that to the first year of the Great Recession, when office rates dropped 9.3%.
