Orange County Market Plateaus Mid-Year

The Orange County office market momentum flattened at mid-year 2017 as absorption recorded 29,100 SF. Vacancy remained at 12.3% from last quarter and dropped 70 basis points compared to one year ago. Market fundamentals will continue to tighten this year as activity has slowed compared to the past two years. As tenants seek right-size space options and new construction delivers to the market during the second half of 2017, absorption gains are expected to be limited.

Key Takeaways:

  • The Orange County office market saw flat, yet positive demand for mid-year. For the quarter, absorption totaled 29,100 square feet (SF).

  • Asking rental rates remained unchanged from last quarter at $2.62 per square foot (PSF) full service gross (FSG).

  • Overall vacancy remained unchanged from last quarter recording at 12.3%. The market still exhibited momentum, as vacancy decreased by 70 basis points from one year ago.

  • Leasing activity fell from last quarter’s high of 2.2 million to 1.5 million SF, which is in line with the five year historical average.

  • The overall economy continued to see solid growth during second quarter. The Orange County unemployment rate has declined from 3.7% to 3.2% year-over-year. Job gains are highest in construction and professional business services. The Orange County unemployment rate is among the lowest in California.

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.