ACTIVITY SWOONS FROM COVID-19 LOCKDOWN

Leasing activity slowed dramatically in the second quarter as the economic disruption of Covid-19 forced companies to temporarily close offices, furlough workers and transition others to work remotely.

 There were 252 lease transactions from April through June, a 43% reduction compared to the first quarter. The volume of space leased in Q2 also fell 39% to 1.1 million SF.  In contrast, there was more leasing during the worst of the sub-prime mortgage collapse that triggered the 2008-09 recession.  The low point in activity came in Q4 2007 with 292 leases for 1.24 million SF as several locally based national lenders started shedding acres of office space. 

 Of concern to landlords and users this time around are the lasting effects of the work-from-home experience and its impact on productivity and business continuity after a recovery begins and arrival of promised vaccines.  Office layouts could change to allow for social distancing with more space per worker, reversing the creative open-office trend. Improved technology also may enable companies to operate with fewer workers.

 Overall second-quarter net absorption was negative 98,163 SF with two of the county’s five office submarkets posting positive growth.  The county’s office inventory totals 117.2 million SF, about half of which is in premium Class A buildings.  Lee & Associates’ quarterly survey tracks 1,348 buildings, 58% of which are in the Airport and South County markets.

 South County has shown the most strength before the downturn and since. With 26.6 million SF of inventory, South County has had five straight quarters of growth, totaling 461,628 SF and in Q2 checked in with 98,844 SF of positive net absorption.

 The small 9.6-million-SF West County market produced the most quarterly growth in six years with 103,487 SF of Q2 absorption helped by Epson’s move from Long Beach to 150,342 SF on Katella Avenue in Los Alamitos.

 The 43.8-million-SF Airport market, the county’s largest, saw its vacancy rate climb 50 basis points to 12.3% after tenants shed 98,163 SF of space in Q2.  Average asking rents are down 3.7% year over year.

 There were 72,338 SF of negative Q2 net absorption in the 22.4-million-SF Central County market.  The vacancy rate increased 30 basis points to 12.5%.  Absorption has been in the red in three of the last 12 quarters, but asking lease rates increased 2.7% year over year.  

 Four buildings under construction and totaling 735,209 SF are set for delivery this year.  The Press – a 380,856-SF creative conversion of the former Los Angeles Times’ office and printing facility in Costa Mesa – is set for August delivery.  Three Irvine Company buildings totaling 344,353 SF in the Irvine Spectrum are slated for December completion.

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