MARKET DRIVERS
COMPANIES that made the difficult decision to vacate early due to the pandemic have further pushed sublease availabilities past levels not seen since 2008. Currently, there are over 3.7M SF of available sublet space, an increase of 100K SF from the prior quarter.
AVERAGE ASKING RATES continue to soften in 2Q21, concluding at $2.71/SF on a full-service basis. Landlords must remain aggressive with pricing and concessions in order to compete with the vast majority of sublease space entering the market. On average, asking rates for sublet space are $0.48/SF lower than direct space.
LEASING ACTIVITY declined 4.15% YOY to conclude the quarter at 1.78M SF. Although California officially reopened businesses on June 15, many tenants have continued a work-from-home schedule, causing less demand for office space.
OVER 298K was delivered to the market in the second quarter with 829K SF currently under construction.
ECONOMIC REVIEW
SINCE COVID-19 began in 2020, many businesses were forced to make the difficult decision to shut down operations or perform company layoffs. Since then, Orange County has continued to recover, reporting an unemployment rate of 5.9% as of May 2021. This is down from 6.2% reported from the prior month and below the state average of 7.5%.
COUNTYWIDE JOB LEVELS increased by 19,100 between April and May with leisure and hospitality adding the most jobs at 14,500, followed by arts, entertainment, and recreation with 9,100 jobs.
NEAR-TERM OUTLOOK
VACANCIES AND SUBLEASE AVAILABILITIES will be tested moving forward, applying downward pressure on rents. Additionally, landlords will continue to offer additional incentives and reduced rates in order to secure new deals. As companies take time to reevaluate their office footprint across the metro, leasing activity may further compress moving forward.