By Dennis Kaiser

The Orange County office market remains on firm footing in 2Q 2019, as office demand continues to increase in lock-step with the steady influx of new supply. A review of market reports from various CRE brokerage houses included a number of highlights that reflect where the market may be heading.

Kidder Mathews’ noted the office market “recovered from a slow start at the beginning of the year, posting a strong positive absorption of roughly 252,000 square feet. Kidder Mathews points out net absorption for Class B office space had the most impact this quarter, contributing roughly 254,267 square feet of positive absorption.

Asking rental rates continued to record post-recession highs, says Kidder Mathews, while vacancies remained relatively stable. It says asking lease rates have been relatively flat in recent months, increasing $0.01-per-square-foot. In spite of a slowdown in rent growth, average asking lease rates have grown for 29 straight quarters ending at a record-breaking rate of $2.75-per-square-foot on a full-service basis.

Cushman & Wakefield reports Orange County finished the mid-year of 2019 with overall asking rates of $3.02-per-square-foot per-month, an increase of $0.03 (1%) since last quarter and an increase of $0.16-per-square-foot per-month (5.6%) since the same period last year. Researchers at CushWake note new construction completions at Flight @ Tustin Legacy (pictured) and Discovery Park helped to push Q2 rents. Class A overall rents in Orange County finished the quarter at $3.35-per-square-foot per-month, an increase of $0.09 (2.8%) from the year prior.

NAI Capital researchers reports average asking rents continued to break records. The average office asking rent hit $2.80-per-square-foot, the highest level on record, up 1.1% over the prior quarter and 3.7% year over year. The average rent is now 2.6% higher than the prior peak in 3Q 2007.

Cushman & Wakefield reported new leasing activity finished Q2 2019 at 1.9 million square feet, bringing the mid-year total to 3.9 million square feet. Compared to the same mid-year period last year, Orange County leasing activity increased 18.4%, according to CushWake. Meanwhile, Kidder Mathews says market-wide leasing activity slowed Q2 quarter to 581 transactions encompassing 2,485,507 square feet in volume, down from the previous quarter’s 3,460,158 square feet.

NAI Capital pegged quarterly leasing activity at more than 2.6 million square feet, which was down 24.4% over the prior quarter, and 18% over 2Q 2018. However, year to date leasing activity has remained strong, totaling over 6.2 million square feet, up 5.8% over last year at this time.

One interesting trend involved the growth of co-working and flexible space. Within the past year, shared space occupiers have leased more than 825,000 square feet with additional leases currently under negotiations, reports Kidder Mathews.

In addition, Kidder Mathews notes sales transaction volume more than doubled from last quarter, as investors continue to trade trophy properties and office campuses. Sale transactions for the quarter jumped to 1,709,759 square feet in volume, up from 874,921 square feet from the quarter prior. Tight vacancies, healthy demand fundamentals and continual positive rent growth have contributed to the confidence of investors in Orange County, as it is a good time to be a landlord or a seller.

NAI Capital said quarterly sales volume totaled 2.1 million square feet, up 44% over the prior quarter and 4.7% year over year. However, year to date sales activity totaled just 3.8 million square feet, down 17.8% over last year at this time.

Connect Orange County is coming up on August 22nd at The Resort at Pelican Hill in Newport Coast. More information about the event and registration information can be found here.

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