Monica Moore
Large office lease deals in Orange County, defined as 30,000 square feet or larger, increased in the first quarter of 2019 compared to early 2018, according to a new report from JLL. The leasing activity reduced the overall availability of large floor plates. The number of available spaces over 50,000 square feet decreased from 66 to 59 quarter-over-quarter. There were a total of 29 leases totaling 1.8 million square feet.
“Two factors that drove the increase in large lease transactions this year include tenant consolidations and local economic expansion,” Monica Moore, managing director at JLL, tells GlobeSt.com. “Tenants in all sectors continue to evolve and cut occupancy costs by consolidating office space. At the same time, the local economic expansion has continued in 2019. According to the EDD, Orange County's current unemployment rate is 2.4%, representing the lowest rate since 2000. Despite the tight employment market, Orange County added 18,600 jobs since this time last year. Job growth remains connected to the demand for office space.”
The Airport Area has seen the most leasing activity for large floor plates, accounting for 55% of the total leases in the quarter. This market also had the largest availability of large blocks of office space. “The Airport Area has dominated leasing activity, out-pacing other submarkets around the county. The leasing activity was spread throughout the submarket in Costa Mesa, Irvine, and Newport Beach,” says Moore. “The Orange County market recorded 1.8 million square feet of large block leasing activity, of which nearly 1.0 million square feet occurred in the Airport Area. Both Central and South County submarkets realized over 350,000 square feet of activity while West County totaled 180,000 square feet.”
Even better, the leasing activity is coming from a diversified group of companies and industry sectors. This is a significant shift from occupiers of large floor plates in the last cycle, which were primarily from the financial sector and mortgage companies. “While leasing activity during the previous real estate cycle was heavily driven by the financial services sector, most notably mortgage companies, the current market landscape is well diversified,” says Moore. “Occupiers from diverse industry verticals leased blocks of office space greater than 30,000 square feet, including professional and business services, government, tech, and co-working as the most active, leasing a total of 1.2 million square feet.”
Despite the diversity of tenants, there is a common theme of what tenants are looking for in an office space. “A progressive space design, coupled with the right mix of amenities, are the main drivers attracting these tenants,” says Moore. “Co-working groups and tech companies are particularly focused on the office experience for their user groups.”
This is not a one-off peak in leasing. Moor expects leasing activity for large blocks to remain active through the end of the year and beyond. In fact, there are already lease transactions in place scheduled to close at the end of the year. “Without question we will see these trends continue and will likely spill in to 2020,” says Moore. “The overall market sentiment remains optimistic, and tenants have an overall positive outlook on the economy. Between the new transactions and a record number of building sales projected this fall, there will be continued upward pressure on lease rates.”
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Kelsi Maree Borland
