Third Quarter 2024
Ventura County Office Market Sees Signs of Recovery Amid Persistent Challenges
Vacancy Rates Decline, Sublease Activity Trends Positive, and Investors Find Value in a Shifting Market.
This upward momentum suggests the market is approaching a trough.
MARKET OVERVIEW
The Ventura County office market’s recovery continues, though challenges remain in boosting occupancy levels for office space. Landlords, responding to weak demand and elevated vacancy rates, have adjusted asking rents to address persistent vacancies—a strategy yielding positive results. This quarter, vacant office inventory declined by 68,602 square feet quarter over quarter, signaling the market may have reached a trough in this cycle, with occupancy showing signs of improvement. Quarter over quarter, vacant direct office space decreased by approximately 2.0%, while sublease space fell by 1.4%, marking modest progress toward pre-pandemic occupancy levels.
Driving demand, sublease asking rents experienced a sharp 16.9% decline, while asking rents for direct space remained relatively stable, decreasing only slightly by 1.6% year over year to $2.46 per square foot on a full-service gross basis.
Throughout the first half of 2024, vacancy rates fluctuated. The overall vacancy rate decreased by 20 basis points quarter over quarter but remains 10 basis points higher year over year, standing at 11.9%. The rate of increase in vacant office space appears to be stabilizing, influenced by evolving dynamics in remote work and space utilization strategies. However, leasing activity remains weak, with year-to-date leasing volume down 23.4% compared to the same period last year and declining 20.7% quarter over quarter.
Notably, vacant office space has exceeded pre-pandemic levels for 18 consecutive quarters. Sublease space, which surged by 555% since 2020, is now trending in the right direction, remaining below half a million square feet for the second consecutive quarter—a pattern reminiscent of the recovery following the Great Recession.
TRENDS TO WATCH
Tenants seeking value will find opportunities in buildings with vacant sublease space. In the third quarter of 2024, tenants subleased 30,306 square feet in Ventura County, bringing the year-to-date total to 53,576 square feet—more than double the subleasing activity compared to the same period in 2023. The trend of tenants unloading excess square footage through subleasing appears to be diminishing. While the region still has a significant amount of available sublease space, it has shown notable decreases of 2.1% quarter over quarter and 5.1% year over year.
The improvement in sublease availability is particularly pronounced in the West submarket compared to the East. In Q3, available sublease space in the East totaled 579,950 square feet, while the West submarket saw a significant reduction, dropping to just 21,473 square feet—more than 50% lower year over year. As subleasing activity intensifies, the average asking rent for sublease space in Q3 was $2.07/SF, offering a substantial discount compared to direct space. Sublessors have initially responded cautiously, limiting discounts to mitigate losses, but competitive pressures from landlords offering direct space are likely to drive further rent reductions.
The investment market for office properties also reflects a shift. The average cap rate in Q3 2024 increased by 100 basis points year over year to 7.0%. Concurrently, the average price per square foot dropped by 40.2% to $138/SF, highlighting the decline in property values. However, buyers are finding value in the office market, driving sales volume higher. Year-to-date sales volume increased by 41.4% compared to 2023, reaching $98.5 million. This upward momentum suggests the market is approaching a trough, with the trend likely to persist through the end of the year.
