The Orange County economy continues expanding, as most jobs lost during the economic downturn seem to have been recovered, and most sectors show healthy growth.
Strong job growth has aided the market recovery, and the vacancy rate declined to 9.2% from 10% in the first quarter. Leasing activity showed no sign of slowing, with more than 2.5 million square feet of active requirements in the market.
Strong regional economies and a recent boost in tourism should maintain the pace.
The average asking lease rate has finally started to reflect the improved local economy.
The market in the first quarter posted the largest lease rate gain since the first quarter of 2007. The overall asking lease rate jumped an additional 11 cents and was up 10% year-over-year. Lease rates improved in all areas, headlined by a 21% jump in the Airport Office Area submarket. Class A space ended the quarter at $2.48 per square foot, followed by class B properties at $2.06. High-rise, midrise, and low-rise properties recorded asking rates of $2.44, $2.23 and $2.11, respectively.
The county’s total net absorption wasn’t able to sustain the pace of the first quarter, though the year-to-date total exceeded the first half of 2014, totaling 1.9 million square feet. All areas posted positive net absorption totals with the exception of Newport Center, which generated a negative year-to-date absorption of 7,276 square feet due to a handful of small move-outs. Organic growth of companies and new tenants in the market seem to hold equal responsibility for the steady leasing activity.
LoanDepot expanded during the quarter by 90,000 square feet, signing a deal only a few blocks from its current location at 26642 Towne Centre Drive in Foothill Ranch and bringing its footprint to 221,267 square feet. Cox Communications recently sold its building in Rancho Santa Margarita to Applied Medical and signed a 73,719-square-foot deal at 27121 Towne Centre Drive in Foothill Ranch. Zenith Education Group, formerly Corinthian Colleges, claimed the quarter’s largest renewal: 105,636 square feet at 5 Hutton Centre in Santa Ana.
The Irvine Company’s project at 200 Spectrum has been the only prominent ground-up office building under construction since the third quarter of last year.
The city of Tustin recently entered into an exclusive negotiating agreement with Lincoln Property Co. to move forward with Cornerstone I, a 760,000-square-foot creative-office campus with almost 100,000 square feet of supporting amenities and retail space.
Most OC sales are still well below peak pricing and current replacement cost, though the office investment market is gaining traction and showing improvement across all major metrics.
The 392,879-square-foot Pacific Center in Santa Ana sold to the Brookhollow Group and Pacific Coast Capital Partners for $43.9 million in June. Bixby Land Co. purchased 26880 Aliso Viejo Parkway in May for $11.6 million, or $218 per square feet.
Analysis provided by CBRE Research
