IRVINE, CA—The high amount of class-B office absorption in Orange County during the fourth quarter of 2016 was simply due to class-A rents increasing to a level where companies were not comfortable paying the rates, JLL SVP Curtis Ellmore tells GlobeSt.com. According to a recent report from the firm, comparing 2007 to 2016, 571,333 square feet more space was available in 2007, there were 93,700 more non-farm jobs in 2016, and there were 38,300 new jobs in the previous 12 months now versus 10,300 jobs lost in the previous 12 months in 2017.
The report also noted that Orange County class-B office market in recorded five times more positive net absorption than class A during the year. And, the Airport Area office market ended 2016 by setting a new monthly average asking rent high mark of $3.06 per square foot, full service gross.
We spoke with Ellmore about the report and the large amount of class-B space absorbed during the quarter.
GlobeSt.com: What are the biggest takeaways from your Q4 OC office report?
Ellmore: 2016 was a healthy year for the Orange County office market. Depending upon the submarket, rents increased 8% to 10% year over year. Vacancy rates on average fell 2% with positive absorption. Interest rates creeped up a bit at the end of the year, around the election. During this time, we saw institutional-office sale pricing pull back 5% to 10%.
GlobeSt.com: To what do you attribute the amount of class-B absorption during the quarter?
Ellmore: This was simply due to class-A rents increasing to a level where companies were not comfortable paying the rates.
GlobeSt.com: What impact will this absorption have on class-A space, if any?
Ellmore: The pricing delta between class-A and class-B is as such that we have not seen companies in class-B space moving up. The pool of companies occupying class-B space would need to increase significantly for us to see the spillover effect to class-A space.
GlobeSt.com: What should we expect from the OC office market in 2017?
Ellmore: The indicators for 2017 lead us to believe Orange County commercial real estate will continue to maintain strong/healthy fundamentals. We continue to see rent growth based upon tenant growth and demand. We expect rent growth to offset an increase in interest rates, which will stabilize cap rates.
IRVINE, CA—The high amount of class-B office absorption in Orange County during the fourth quarter of 2016 was simply due to class-A rents increasing to a level where companies were not comfortable paying the rates, JLL SVP Curtis Ellmore tells GlobeSt.com. According to a recent report from the firm, comparing 2007 to 2016, 571,333 square feet more space was available in 2007, there were 93,700 more non-farm jobs in 2016, and there were 38,300 new jobs in the previous 12 months now versus 10,300 jobs lost in the previous 12 months in 2017.
The report also noted that Orange County class-B office market in recorded five times more positive net absorption than class A during the year. And, the Airport Area office market ended 2016 by setting a new monthly average asking rent high mark of $3.06 per square foot, full service gross.
We spoke with Ellmore about the report and the large amount of class-B space absorbed during the quarter.
GlobeSt.com: What are the biggest takeaways from your Q4 OC office report?
Ellmore: 2016 was a healthy year for the Orange County office market. Depending upon the submarket, rents increased 8% to 10% year over year. Vacancy rates on average fell 2% with positive absorption. Interest rates creeped up a bit at the end of the year, around the election. During this time, we saw institutional-office sale pricing pull back 5% to 10%.
GlobeSt.com: To what do you attribute the amount of class-B absorption during the quarter?
Ellmore: This was simply due to class-A rents increasing to a level where companies were not comfortable paying the rates.
GlobeSt.com: What impact will this absorption have on class-A space, if any?
Ellmore: The pricing delta between class-A and class-B is as such that we have not seen companies in class-B space moving up. The pool of companies occupying class-B space would need to increase significantly for us to see the spillover effect to class-A space.
GlobeSt.com: What should we expect from the OC office market in 2017?
Ellmore: The indicators for 2017 lead us to believe Orange County commercial real estate will continue to maintain strong/healthy fundamentals. We continue to see rent growth based upon tenant growth and demand. We expect rent growth to offset an increase in interest rates, which will stabilize cap rates.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
