Orange County Rents Increase to Start 2017

The Orange County office market stared 2017 on a positive note as net absorption recorded positive 154,200 SF. Vacancy decreased to 11.9% dropping 10 basis points from last quarter. The additional new inventory planning to come online in 2017, provides opportunities for tenants seeking large blocks of Class A traditional and creative office space.

As overall space options have become limited with vacancy declining and new construction coming online, asking rental rates have increased by 9.1% 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 positive demand for the first part of the year. For the quarter, absorption totaled positive 154,200 square feet (SF).

  • Asking rental rates rose by 9.1% year-over-year to start 2017 at $2.62 per square foot (PSF) full service gross (FSG).

  • Due to an increase in absorption, overall vacancy fell to 11.9%. The market still exhibited momentum, as vacancy decreased by 120 basis points from one year ago.

  • Leasing activity jumped from fourth quarter recording 2.2 million SF. This level of leasing activity was last seen at the end of 2014.

  • The overall economy continued to see solid growth in fourth quarter. The Orange County unemployment rate has declined from 4.1% to 3.7% year-over-year.

Outlook:

Moving into the second half of 2017, the Orange County market is expected to see signs of stabilization. Class A asking rental rates have plateaued as the Airport Area and South County markets have reached their historical rental rate peaks, while Central County, North County and West County remain below prior pricing peaks. Class B & C asking rental rates may flex as tenants seek cost saving alternatives. New space development coming online during the second half of 2017 is expected to put upward pressure on vacancy.