Q2 2022 Office Market Outlook – Orange County
Orange County’s office market gained occupancy as companies persisted in bringing their people back into the office post pandemic. The vacancy rate inched downward as demand for office space got a boost in most submarkets in the second quarter, since seeing an increase in the first quarter of 2022. Many submarkets saw gains in occupancy as the vacancy rate decreased 30 basis points quarter over quarter to 11.4 percent, down 40 basis points from last year at this time. The average asking rent remained flat for the second consecutive quarter as space under construction totaled 1,278,873 square feet in the second quarter, down 1.7 percent year over year.
Available office space on the market lessened this quarter compared to last year at this time, while work from home and space utilization strategies continued to play out. In the Airport area, which is the largest submarket, office space put on the market declined 1.0 percent on a direct basis with sublease space decreasing at more than twice the rate at 2.5 percent year over year. Orange County’s total available office space hit 24.5 million square feet this quarter – down 2.3 percent from last year. In contrast, available sublease space increased 4.3 percent from last year, still shy of the Great Recession’s all-time high, to more than 3.7 million square feet. The average asking rent remained unmoved from the previous quarter, up 2-cents year over year, at $3.73 per square foot, full service gross.
TRENDS TO WATCH
Tenants seeking value will look to lease where there is the most available space, helping to keep rents steady. The Airport submarket, which holds 55 percent of the available office space, saw rent remain flat year over year at $2.75 per square foot. Airport as the largest submarket weighted on the average rent in region which did not budge from the previous quarter. Airport captured the most leasing activity year to date in the second quarter of 2022, up 11.1 percent from 2021 to more than 2.9 million square feet, which boosted leasing volume 16.4 percent above last year in the region. Year to date office building sale volume in Orange County climbed 47.6 percent year over year. The average sale price per square foot was up 20.6 percent year over year.
In the first half of 2022 low to mid-rise office buildings (buildings 6-stories and under) gained 328,584 square feet of positive net absorption while high-rise buildings (7-stories or higher) experienced 451,935 square feet of negative net absorption. The vacancy rate in low to mid- rise office buildings registered 10.2 percent while high-rise buildings showed a much higher rate at 15.9 precent. Rent in low to mid-rise buildings increased 0.8 percent to $2.67 per square foot. In contrast, rent for high-rise buildings saw a 0.3 percent drop year over year to $3.03 per square foot.
Office buildings will continue to see demand improve as the flight quality low to mid-rise office buildings within suburban submarkets takes shape.