Jobs Lower Vacancy
The Orange County office market vacancy rate was 14.2% at the end of the second quarter of 2013, down 100 basis points from 15.2% in the first quarter. Interestingly, it was just one year ago that vacancy was 280 basis points higher, registering at 17%. Over the past six months, an impressive performance resulted in more than 1.7 million square feet of positive net absorption, with the second quarter contributing a positive 877,204 square feet. The Orange County office market is now in its fifth consecutive quarter of positive absorption, which has driven the vacancy rate down from its peak of 21.0% in the second quarter of 2010. The increase in occupancy levels was the result of improvement in the job market. Financial services firms posted the largest year-over-year increase with the addition of 6,500 jobs overall; 86.0% of the growth occurred in finance and insurance. Construction added 6,400 jobs overall with nearly 63.0% of the gain in specialty trade contractors. Construction of buildings and heavy/civil engineering construction added 1,200 jobs each. The average asking rent for the second quarter of 2013 was $1.90/sf, and has continued to move up over the past three quarters.
Most notably, the Orange County office market experienced a significant amount of Class A net absorption, registering 635,000 square feet in the second quarter. Year-to-date, Class A space represents the majority (51.0%) of the overall net absorption. The 16.3% vacancy rate for Class A space dropped 360 basis points from one year ago. The Airport Area submarket experienced the most improvement, with Class A vacancy coming in 350 basis points lower than the second quarter of 2012. The largest transactions contributing to the decrease in this submarket include Google’s lease of 70,000 square feet, Title Resource Group’s lease of 45,000 square feet, and Pacific Life’s lease of 37,974 square feet.
Job growth and the economy continue to be the main influencers of improvement in office market occupancy. Orange County, which leads Southern California in office occupancy gains, also has the lowest unemployment rate in the region at 5.5% in May 2013. Total employment increased by 24,500 jobs, or 1.7% over last year. This progress in employment has translated into a great improvement in the vacancy trend for office space.
Expect the Orange County economy and office market to continue on the path to recovery through the next several quarters as the vacancy rate gradually moves below 14.0%. Rental rates should steadily rise as the economy gains more strength. View Report