The office market in Orange County is off to a rocky start this year. According to research from NAI Capital, the office vacancy rate ticked up 80 basis points in the first quarter to 9.7%—the biggest increase in Southern California. While the numbers are nominal, the office vacancy rate has been slowly ticking up since the first quarter of 2017, and Joe Faulkner of NAI Capital expects the supply to continue to grow this year. A combination of new product deliveries, the redevelopment of older product and the rightsizing trend is driving the increasing office supply in the market.

“There is no underlying, overarching principal,” Faulkner, executive managing director of NAI Capital's Downtown office, tells GlobeSt.com about the trend. “Orange County had the biggest jump in vacancy rate, but the market had a lot of new product come online. The Spectrum area has had a lot of office development that has been preleased, and the Airport Area has suffered a little bit as a result.”

While the new office development has been a contributor to the growing vacancy metric, an increase in sublease space has also begun to impact the direct leasing market. “One thing that portends some caution in the future is that more sublease space has hit the market,” says Faulkner. “More companies have oversubscribed or are in the process of rightsizing or downsizing based on the fact that they are using a lot less square footage per employee. Orange County has had come massive swings in sublease space. When the market collapsed, 26% of the space around the Airport were mortgage companies, so it collapsed and has slowly crept its way back.”