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July 14, 2024
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OC Office Market Sees Over 850k sf of Positive Absorption in 2015


The Orange County office market continued to improve in 2015, posting over 850k sf of positive net absorption for the year. The fourth quarter of 2015 marked the eleventh consecutive quarter of rising lease rates. The average asking full-service gross lease rate finished the fourth quarter at $2.26, an increase of eighteen cents from 2014’s average asking rate, according to a new Fourth Quarter Market Report from Voit Real Estate Services.

“This is great news for the Orange County market overall,” explains Jerry Holdner, Vice President of Market Research at Voit. “The rise in lease rates demonstrates that the market continues to improve, which further supports the recovery we’ve been forecasting for the past 12 to 24 months.”

Demand for Office Product Increases

As a whole, the Orange County office market has seen over 4.3 msf of positive absorption since the first quarter of 2013, according to Voit’s report.

One trend to note, according to Holdner, is the increase in construction. Total space under construction came in at just over 1.8 msf for the fourth quarter of 2015. Most of the current construction is occurring in the Irvine Spectrum submarket, 1.7 msf. “We should see an increase in construction in the coming quarters, as typically the cranes come out when vacancy dips below 12%.”

As 2015 came to an end, direct/sublease space (unoccupied) finished the year at 10.78%, a decrease from the previous year’s rate of 11.5% and significantly down from both the recession peak of nearly 18% in the third quarter of 2010 and the market high of 23% recorded in 1990.

Holdner notes “We are continuing to see a decrease in the amount of vacant and available space on the market, even with new product being delivered. As we progress into 2016, positive absorption and higher occupancy costs should continue, new deliveries in the southern half of the county may apply upward pressure on vacancy, and the market will further improve.”

Vacancy and Availability in Industrial Market Reach Pre-Recession Levels

The Orange County industrial market took significant strides toward continued improvement in 2015 with significant positive absorption for the year, a six-cent or 9.5 percent increase in asking lease rates, and significant drops in both vacancy and availability.

“Overall in the Orange County industrial market over the last three years, vacancy has reduced 37 percent while availability has decreased 23.2 percent,” says Holdner. “The substantial decreases in vacancy and availability are contributing to the gains in asking lease rates and sale prices.”

Both vacancy and availability continued trending downward throughout 2015. Vacancy ended the fourth quarter of 2015 at 2.33 percent, the lowest rate ever recorded and a drop of over 23.5 percent from 2014’s fourth quarter. Likewise, availability posted a rate of 4.47 percent at the close of the year, the lowest rate in nearly ten years, and a decrease of almost 17 percent from 2014. The record low rate recorded for availability was 4.29% in the fourth quarter of 2005.

As lease rates rise, sale prices are also ticking up, notes Holdner, who attributes this trend to the diminishing supply of industrial product for sale in Orange County, particularly in buildings smaller than 100k sf.

“Currently, only around one percent of the inventory in the Orange County industrial market is available for sale. This lack of supply will continue to place upward pressure on pricing going forward,” he explains.

“Overall, it’s a great time to be a seller, but we continue to be cautiously optimistic about the Orange County market,” says Holdner. “We continue to see improvement in both the office and industrial markets, and we anticipate positive gains moving forward, provided job creation continues.”

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