SoCal Office Market Trends Q2 2022

Southern California’s low to mid-rise office buildings saw vacancy decrease and rent rise in H1 2022

While Southern California’s overall vacancy rate for office space appeared flat year over year at 12.6 percent, vacancy in low to mid-rise office buildings dropped 50 basis points to 10.6 percent over the same timeframe. In contrast, the vacancy rate in high-rise office buildings 7-stories or higher increased 150 basis points to 17.8 percent year over year.

Businesses are upgrading their office space in an effort to lure workers back with landlords gaining quicker occupancy in low to mid-rise office buildings.

In the first half of 2022, occupancy levels in low to mid-rise office buildings (6-stories and under) noticeably improved compared to high-rise office buildings 7-stories or higher. Low to mid-rise office buildings gained 2,446,462 square feet of positive net absorption as high-rise buildings experienced a negative 1,479,832 square feet of net absorption.

Demand for office space in low to mid-rise buildings in Southern California has pushed the average asking rent up. Since the second quarter of 2021, rents increased 4.3 percent in low to mid-rise office buildings to an average of $3.18 per square foot per month on a full-service gross basis as of Q2 2022.

Slack demand for high-rise office space in Los Angeles and Orange counties, the largest office markets, impacted the average asking rent for high-rise office space in the Southern California. Los Angeles County saw six-tenths of a percent increase in the average asking rent while Orange County dropped 2 percent between Q2 2021 and Q2 2022. Overall, the average asking rent for high-rise office space inched up only nine-tenths of a percent to $3.27 per square foot and lagged low to mid-rise office space.

Below is a market-by-market vacancy and rent trend along with a first half 2022 snapshot of net absorption for low to mid-rise versus high-rise office buildings.

 

Los Angeles County

In Los Angeles County low to mid-rise office buildings gained more than 1.4 million square feet of positive net absorption as high-rise buildings experienced 1 million square feet of negative net absorption.

While the overall vacancy rate for office space in LA County registered 14.2 percent in the second quarter of 2022, the vacancy rate in low to mid-rise buildings moved down to 11.8 percent. Vacancy in high-rise buildings climbed to 18.4 percent during Q2 2022.

Brisk demand for office space in low to mid-rise buildings drove rent up in that segment of the market at a rate of four percent to $3.62/SF, compared to six-tenths of a percent increase for high-rise office space at $3.36/SF, year over year.

 

Orange County

In Orange County low to mid-rise office buildings gained 571,670 square feet of positive net absorption while high-rise buildings saw a negative 451,880 square feet of net absorption.

Orange County’s average rent for low to mid-rise space increased 0.6 percent to $2.67/SF in Q2 2022 compared to a negative 2.0 percent for high-rise office space ($2.97/SF), year over year.

The overall vacancy rate for office space in Orange County in the second quarter of 2022 hit 11.5 percent. The vacancy rate decreased to 10.3 percent in low to mid-rise buildings and increased to 16.3 percent in high-rise buildings.

 

Inland Empire

Inland Empire low to mid-rise office buildings gained 438,564 square feet of positive net absorption and high-rise buildings also added 26,882 square feet of positive net absorption.

Inland Empire’s average office rent climbed to $2.29 per square foot per month, up 6.0 percent year over year. Low to mid-rise rent ($2.21/SF) increased 6.8 percent compared to 4.2 percent for high-rise office space ($2.74/SF), year over year.

The overall vacancy rate for office space in Inland Empire decreased in the second quarter of 2022 to 5.9 percent. The vacancy rate decreased to 6.0 percent in low to mid-rise buildings and decreased to 4.2 percent in high-rise buildings. Inland Empire was the only office market that had an overall drop in the vacancy rate quarter over quarter and year over year in both high-rise and low to mid-rise buildings.

 

Ventura County

Ventura County saw negative net absorption in both low to mid-rise and high-rise office buildings, shedding 1,291 and 4,300 square feet, respectfully.

Rent for low to mid-rise office in Ventura County ($2.51 PSF) increased 3.3 percent year over year. With only 2 high-rise office buildings in Ventura County, rent remained 4.6 percent higher than last year in that segment of the market, averaging $2.51/SF as of Q 2022.

The overall vacancy rate for office space in Ventura County increased in the second quarter of 2022 to 12.2 percent. The vacancy rate decreased to 12.0 percent in low to mid-rise office buildings, increasing to 37.2 percent for high-rise office building space.

Southern California’s office sector fundamentals remain resilient. The data shows more tenants decided on low to mid-rise office building space in the first half of 2022.

Heading into the second half of 2022, steady growth in office-occupying employment sectors will slowly drive office space absorption as companies make decisions on where to locate the “home” office.