OC Office Inches Closer to Pre-Pandemic Normal

Orange County’s office market is beginning to recover, according to a new report from JLL. In the fourth quarter, leasing activity increased for the second consecutive quarter, with the total available space decreasing by 7% quarter-over-quarter and the office vacancy rate decreasing by 80 basis points.

At the end of the year, technology and automotive companies lead the leasing demand, accounting for 40% of all new office leases. The largest lease transactions in the market were largely signed by technology companies. Anduril signed a lease for 639,206 square feet at 1375 Sunflower Ave. in Costa Mesa; Verizon Communications signed a 119,049-square-foot lease at 15505 Sand Canyon Ave. in Irvine; and Bandai Namco Games signed a deal for 69,647 at 15550 Sand Canyon Ave. in Irvine.

Unemployment also improved in the market, inching down to 3.7%, only slightly higher than the 3.3% unemployment rate in the market before the pandemic. While information-based jobs grew nominally in the market, much of the new job growth has stemmed from trade, transportation and utilities companies.

While the market is showing signs of improvement, there continue to be some lingering challenges. Rent growth is down 3% quarter-over-quarter, and although there were no new office deliveries, office absorption remained in the red, coming in at -820,000 square feet. To ease some of the over office supply, developers are converting unused and obsolete office space into industrial warehouses, which are seeing soaring demand. Approximately 3 million square feet of office space, about 3% of the market supply, will become industrial space.

While sublease supply declined by 12%, nearing the pre-pandemic stock of 2.4 million square feet, there was also an increase in large floor plates, above 50,000 square feet.

In early 2021, research from JLL expected financial services firms to shine through the turbulence related to the pandemic. Research at the time from JLL showed the financial services industry is responsible for 27% of large block leasing activity. Mortgage companies have benefitted from increased refinancing business due to low interest rates, and they are expanding. According to the current report, the financial services sector is growing, creating about 400 new jobs.