Orange County Market Gains Positive Momentum
Orange County office market activity increased momentum during the third quarter. Construction activity continued to be a key trend. During the third quarter, 400 Spectrum Center in South County was delivered, adding 466,700 SF to the inventory base. The Boardwalk in Irvine is expected to be completed at the end of 2017, along with an additional 1.8 million SF delivering in 2018. Market fundamentals will remain strong as newly built inventory delivers to the market, giving tenants the opportunity to explore new space options. As tenants seek right-size space options and new construction delivers to the market, absorption gains are expected to be limited in coming quarters.
The Orange County office market saw positive demand for third quarter recording 182,600 square feet (SF) of net absorption.
Asking rental rates increased by $0.08 from last quarter to $2.70 per square foot (PSF) full service gross (FSG).
Despite positive demand, vacancy increased by 10 basis points to 12.5% due to the delivery of 400 Spectrum Center.
Leasing activity increase from last quarter’s low of 1.5 million to 1.7 million SF, in line with the five-year historical average.
Orange County job growth slowed with 1,400 jobs lost in the month of August, though jobs gained so far this year are still up by 900. Annual job gains are highest in construction
(6,100 jobs) and leisure and hospitality (3,600 jobs). The Orange County unemployment rate is still among the lowest in California at 4.2%.
Moving into the end of 2017, the Orange County market is expected to maintain positive momentum. Class A asking rental rates have increased as the Airport Area and South County submarkets have reached historical peaks, while Central County, North County and West County submarkets continue to see slow but positive growth. New developments coming online during the end of 2017 and into 2018 are expected to put upward pressure on vacancy.