New product and reinvestments made to existing buildings drove rental rate growth in the office market. As occupiers focus less on cost analyses and more on recruiting, labor retention and employee well-being, state-of-the-art and upgraded product is vital.
With more new product set to come online, occupier trends have become a necessity for landlords appealing to current tenant demand. Demand remained strong, though it didn’t outpace supply.
Irvine Spectrum outperformed and drew employers focused on employees’ needs. Irvine Co. has delivered almost 1.1 million square feet of inventory to the submarket since the first quarter of 2016. In July, 400 Spectrum brought 426,000 square feet of class A product to the market. The company’s new product appealed to employers focused on employee retention and well-being more than ever.
Asking lease rate growth accelerated again, rising 2.5% quarter-over-quarter and 9.7% year-over-year to $2.82 per square foot, per month. Rates were no longer driven by existing class A product. Instead, new product and renovations came online. Plus, the strong start in the first quarter continued, supporting higher asking rates.
Asking lease rates for midrise buildings outpaced high-rise and low-rise counterparts. Midrise asking lease rates rose from $2.60 per square foot to $2.93 per square foot year-over-year, up 12.7%. The growth may slow over the next year due to added inventory and decreased demand. Year-to-date net absorption for midrise buildings moved negative as tenants returned 245,344 square feet while gains occurred in high-rise and low-rise buildings. There’s currently 1.5 million square feet of midrise inventory under construction in South OC.
The county has had 341,782 square feet of net absorption and 816,305 square feet of positive net absorption year-to-date. During the quarter, many tenants took smaller spaces, a good indicator of organic growth. Some of the most common industries in the market now are technology, medical device companies, financial services, entertainment/media and legal. Net absorption was positive in three out of the five main areas in the market, the largest gains occurring in Irvine Spectrum. The submarket’s year-to-date net absorption of nearly 600,000 square feet occurred at Irvine Co.’s new construction, the delivery of which has been expansive since the first quarter of 2016. At 200 Spectrum, which was completed back then, the last full-floor availability recently leased to Sunstone Hotel Investors. The submarket’s vacancy rate was still the lowest in OC, even with the addition of 400 Spectrum. At the 21-story, class A office, a full-floor lease recently signed with SendGrid, brought the project to 40% leased. In Newport Beach, The Boardwalk signed its first prelease for 30,299 square feet with accounting firm HCVT LLC.
Parker Properties delivered a four-story, 205,000-square-foot building in Aliso Viejo. The MicroVention build-to-suit will be the 15th building and seventh and final phase of Summit Office Campus. Flight at Tustin Legacy broke ground on its first phase in July. After acquiring the land from the city, the first phase is being developed by a joint venture of Lincoln Property Co. and Alcion Ventures. The first phase will feature four creative-office buildings, four butler-style platform campus buildings, and a food hall totaling 470,000 square feet. It’s the county’s first purpose-built creative-office campus. The first phase is scheduled to be complete in the fourth quarter of next year.
Analysis provided by CBRE Research
