Strong positive net absorption, led by technology and business services tenants, offset the market’s negative net absorption in the first quarter. Occupiers were drawn to amenity-rich buildings in central locations, and landlords latched onto the trend, focusing on renovations and increased asking rates.
The county’s monthly average asking lease rate of $2.90 per square foot equaled the prior quarter but grew by 5.5% year-over-year, nevertheless indicating a flattening of the long-term growth trend. Due to sustained demand and fewer availabilities, West Orange County asking rates increased 9.3% year-over-year, the strongest growth of all submarkets.
The low unemployment rate, coupled with slow and steady employment growth, further pushed occupiers to focus on skilled-labor attraction and retention. The largest transactions included the state’s lease of 146,000 square feet in Santa Ana and virtual defense industry startup Anduril’s prelease of 155,000 square feet at 2722 Michelson.
The most growth was in West Orange County and Central Orange County due to large amounts of newly renovated product. At the local submarket level, asking rates in Park Center and Santa Ana Civic Center posted year-over-year changes of 15% and 10% as a result of existing product returning to the market. Irvine outperformed the rest of the region due to strong leasing activity, especially at University Research Park’s amenity-rich campus; year-over-year rents increased 5.9%.
Construction is on pace to nearly match the 908,000 square feet of Class A and B office renovations completed last year. There were 470,000 square feet completed year-to-date and 422,000 square feet under renovation that appeal to technology and business service companies and creative tenants trying to attract and retain talent.
Net absorption totaled about 445,000 square feet, offsetting the weak first quarter. The greater airport area’s 329,000 square feet accounted for 74% of the total due to activity by technology and insurance companies. Santa Ana’s positive 218,000 square feet of net absorption was attributable mainly to a 146,000-square-foot deal by the state at 2 MacArthur Place, and CNI Vocational College, which leased 53,000 square feet at 1610 E. Saint Andrew Place.
The motivation behind the state’s move was a desire for a newer, higher-amenity building in a more desirable location. CNI Vocational was forced to move because its old building is scheduled to be demolished to make space for apartments.
In Irvine, two tenants occupied University Research Park space previously leased to Broadcom. Covidien, requiring lab space, moved from the Irvine Spectrum, and Acorns is expanding its footprint by 91,000 square feet, accounting for the bulk of the city’s activity.
Gross leasing activity was up 14.5% quarter-over-quarter and on par with year-over-year levels.
Unlike the first quarter, when renewals dominated, leasing activity was led by new deals by business services, technology and healthcare companies targeting the greater airport area.
— Analysis provided by CBRE Research
