Orange County Rents Increase to Finish 2016

The Orange County office market closed 2016 on a somewhat positive note as net absorption recorded positive 13,100 SF. Vacancy essentially remained flat from last quarter’s 11.9%. 1.2 million SF of new construction is expected to come online in 2017 along with new additional planned development in the pipeline. The new inventory provides opportunities for tenants seeking large blocks of Class A office space. As space options have become limited with vacancy declining, asking rental rates have increased by 9.5% from one year ago. The Orange County office market will continue to be a target area for professional service tenants who are looking for space alternatives outside of Los Angeles and San Diego counties.

Key Takeaways:

  • The Orange County office market saw minimal, through still positive, demand for the fourth quarter. For the year, absorption totaled positive 721,900 square feet (SF).

  • Asking rental rates rose by 9.5% year-over-year to finish 2016 at $2.53 per square foot (PSF) full service gross (FSG).

  • Due to relatively minimal absorption gains, overall vacancy remained flat at 11.9%. However, the market still exhibited momentum in 2016, as this was a decrease of 90 basis points from one year ago.

  • Leasing activity gained velocity from third quarter recording 1.6 million SF, up from 1.4 million SF a quarter ago.

  • The overall economy continued to see solid growth in fourth quarter. The Orange County unemployment rate has declined from 4.2% to 3.7% year-over-year.

Outlook:

Orange County office market should continue to see positive returns going into 2017 as vacancy continues to decrease and absorption remains positive, albeit at a more measured pace than 2016. Along with the new Class A trophy building construction and creative office redevelopment the market supply will continue to grow. Asking rental rates rebounded from a flat third quarter, and positive momentum is expected to carry through early 2017.