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Eight Years into Recovery: Orange County Sustains Office Market Growth
The Orange County Q4 2017 office market reports from commercial real estate brokerage houses reveal sustained growth even as the recovery reaches eight years. The county closed the year with healthy and strong fundamentals.
Cushman & Wakefield’s numbers showed overall vacancy holding steady at 11.1%, though direct vacancy increased 10 bps to 10.5% quarter-over-quarter. Leasing activity hit 7.2 million square feet for the year, roughly paralleling the previous year, and 2017 experienced well over one million square feet of occupancy growth for the year.
Cushman & Wakefield’s Eric Kenas notes, “Moving into the new year, rental rates will increase, particularly in South County’s Irvine Spectrum. Vacancy may experience a slight increase as new construction comes online, but will be counteracted once tenants move into their respective locations. At the close of 2017, it was illustrated that the desire for high-end, creative, amenity-rich space has never proved stronger.”
CBRE’s Q4 office report found that 2.5 million square feet of new office product were added in Orange County in 2017, of which more than half were pre-leased at time of completion. More office development was added last year in Orange County than Los Angeles County. This new high-quality space helped push asking lease rates above prior peak levels, even as vacancy rates increased slightly to 10.9% in Q4 2017, up 100 bps compared with Q4 2016.
NKF’s quarterly summary found that although net absorption was positive for the seventh consecutive year, it was down 23.6 % from 2016. A few tenant downsizes, levied against expansions and new to market entrants, accounted for this decrease. NKF also noted Class B inventory comprised 72.4% of 2017’s net absorption gains, though the average rent in this segment is 23% lower than class A space, yet continues to appeal to budget-conscious tenants. NKF reported new construction deliveries totaled 2.2 million square feet, the biggest addition to new supply since 2007.
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