Despite a remarkable surge in leasing activity during the second quarter, Orange County’s local office market finds itself in a consolidation phase, reflected by the current record-breaking levels of availability.
According to a premier tenant brokerage firm, a total of 1.5 million square feet of office space in OC was leased during Q2, indicating a substantial 39% increase compared to the first quarter’s 1.1 million square feet.
What’s captivating is that among the top 10 deals inked in this period, a mere one constituted a lease renewal. This stands in stark contrast to prior quarters, where six out of the top 10 deals in the first quarter were lease renewals, as highlighted by Savills.
Nonetheless, the heightened confidence exhibited by employers hasn’t yet significantly impacted the overall office metrics. In fact, office vacancy rates soared to an unprecedented high of nearly 25% in the second quarter, marking an increase of 160 basis points from Q1.
Despite the surge in leasing activity, the Savills report attributes this cautious approach to macroeconomic concerns, including recession apprehensions, escalating interest rates, and a slowdown in hiring. This cautious sentiment has translated to subdued demand for office spaces as tenants adopt a wait-and-see attitude.
Consequently, many occupiers are reshaping their square footages or exploring subleasing options for their existing office spaces. Simultaneously, proactive landlords are maintaining an aggressive stance to sustain occupancy levels.
The scenario of sublease space in Orange County is also worth noting, as it continues to rise to historic highs. June witnessed the sublease space hitting 4 million square feet, representing a substantial 25% increase from the previous year’s 3.2 million square feet.
This trend is largely propelled by significant local companies. Notably, Fluor Corp., a prominent engineering and construction company, offered almost 81,000 square feet of space in Aliso Viejo during the second quarter.
While there’s been growth in sublease space on a quarterly basis, the rate of expansion has been moderate. Savills reports a mere 0.2% increase in sublease volume during the second quarter, contrasting with the 2% to 3% expansion in previous quarters.
Expansion trends have been led by companies in healthcare and the TAMI (technology, advertising, media, and information) sectors. Axonics Inc. (Nasdaq: AXNX) secured a noteworthy deal for 145,960 square feet to relocate its headquarters to the Sand Canyon Business Center in Irvine, a significant lease during Q2.
In a landscape shaped by evolving market dynamics, these trends and opportunities illustrate the nuanced panorama of Orange County’s office market.