Q2 2023 Office Market Outlook – Orange County

Market Overview

During the second quarter of 2023, the rate of office space being vacated within Orange County’s
office market witnessed a slowdown, with a lower 0.9% quarter-over-quarter increase in vacant space,
contrasting the higher 16.9% year-over-year rise, resulting in a total of 20.9 million vacant square feet
of office space. This trend was driven by the tug and pull between work from home and returning to the
office. Similarly, the growth rate of available sublease space also experienced a slower pace down 0.4%
quarter over quarter, compared to a 22.7% year-over-year increase, reaching 4.5 million square feet.
However, the available sublease space remained considerably higher than the peak during the Great
Recession. Overall, Orange County’s office market had 26.9 million square feet of available office space
during Q2. The challenge of encouraging workers to return to the office since the pandemic has impacted
office building owners, leading to rising vacancy rates, although the rate of increase in vacant space
appears to be slowing down.

Trends to Watch 

In Q2, the vacancy rate for newly constructed office buildings in Orange County experienced a notable
decrease since the pandemic shutdown in 2020, declining by 6.2% quarter over quarter and reaching
24.9%. These new buildings, with an average of 2 stories and none exceeding four, witnessed this
improvement. Despite the level of vacant space remaining more than double compared to a year ago,
there is an expectation of gradual improvement in occupancy due to a preference for low-rise quality
office space. The average asking rent for new construction remained unchanged for the previous three
quarters but declined by 24.5% compared to Q2 2020, reaching $3.94 per square foot.