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OC office market propped up by small tenants
Deals under 10K sf made up more than 60% of Q1 leases: JLL report
Office leasing in Orange County has picked up — mostly thanks to smaller deals.
About 60 percent of office leases signed in Orange County in the first quarter were for less than 10,000 square feet, according to a report from JLL. The number of leases signed was up 10 percent compared to the first quarter of 2021, though net absorption dropped slightly at 0.1 percent, suggesting companies were taking up less space on average.
“Many employers [showed] a preference for small office footprints” in the first quarter, the report said. The report also shows a lack of sizable tenants in the mix for the quarter, a trend evident in the number of larger companies exiting office campuses. Last year, Bank of America said it would exit a 30-acre office campus in Brea this summer.
The largest direct deal in the first quarter was for 53,980 square feet, according to Newmark. CAP Diagnostics, a medical testing company, leased the space at Irvine Company’s Sand Canyon Business Center in Irvine.
Around 16 percent of Orange County’s office market is currently vacant, according to the report. The statistic is higher for Class A office properties — almost 21 percent of this space is vacant.
Orange County’s numbers are better than Los Angeles, where nearly a quarter of all office space is available. And rents are rising in Orange County, too.
Monthly asking rents averaged $2.81 per square foot across Orange County in the first quarter — a 1.5 percent increase compared to the last quarter of 2021, after two straight quarters of declines.
But landlords in Orange County have increased concessions, JLL said, as a way to entice new tenants and “get deals across the finish line.” In the first quarter, the county saw a 25 percent increase in tenant improvement allowances.
Orange County is set to get more than 1.2 million square feet of new Class A office space over the next few years, even as some existing properties are bought up for conversion into logistics facilities. In the first quarter, 15 office properties were up for conversion into other property types.
Last month, Prologis determined this trend would likely be “minimal,” given city regulatory, zoning and cost issues associated with such redevelopment.