HEALTHY DEMAND GREETS NEW BUILDINGS

Orange County’s expanding inventory of premium office space was met in 2019 with the most tenant demand in three years as 12 buildings totaling 1.3 million SF were completed in the South County and Airport submarkets. Rent growth countywide flattened out in 2019 compared to the 6% average annual gain for the previous six years.

 Net absorption in the Airport market totaled 855,231 SF in 2019, a turnaround from the 693,808 SF of negative absorption for the previous three years. The vacancy rate settled at 12.3% at the end of 2019.  Since 2013, 11 buildings totaling 2.2 million SF have been added to the Airport inventory, which accounts for about 38% of the 116.9-million-SF countywide base.

 Net absorption totaled 71,197 SF in 2019 in South County, whose inventory grew 749,183 SF with the completion of seven buildings.  The added space pushed up South County’s vacancy rate to 13.1% at the end of 2019 compared to 10.9% a year earlier.

 The overall market closes out the ninth straight year of steady tenant growth. Net absorption has gained in 29 of the last 36 quarters. At the same time, 46 buildings have been completed, adding 6.8 million SF to the inventory that now totals 1,340 buildings across the county’s five submarkets. Two buildings totaling 450,824 SF are under construction.

 There was 40,277 SF of tenant growth in 2019 in 14.2-million-SF North County. Four straight years of positive net absorption has reduced the vacancy rate 250 basis points to 7%, making North County the tightest submarket.

 The year-end vacancy rate in 22.8-million SF Central County closed at 12.5%, up 40 basis points from a year ago as tenants shed 95,980 SF space in 2019. That follows 342,235 SF of negative absorption in 2018.  Nevertheless, rents were up 9% in 2019 and increases averaged 8.5% over the last three years.

 After three years of positive absorption in the 9.6-million-SF West County submarket, 65,014 SF of space went back on the market in 2019.  Asking rents declined 1.8% in 2019.

 One of the largest leases of 2019 was signed by co-working space operator WeWork, which leased an 116,000-SF new building in the Irvine Spectrum.  It was one of three Orange County leases WeWork signed last year for more than 255,000 SF.

 Demand for Class A space totaled 406,557 SF in 2019.  It was the tenth straight year of positive absorption. Class A rents declined 0.6% in 2019 compared to 4.8% growth in 2018.

 Despite 205,079 SF of negative net absorption of Class B space in the fourth quarter, there was 354,019 SF of tenant demand for the year.  Rent growth for second-tier space averaged 1.57% in 2019.

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