MARKET DRIVERS
ALTHOUGH DIRECT NET ABSORPTION reported negative for the year at 609,154 SF, there were signs of recovery in 4Q 2021 as the market reported positive gains for the first time since the start of the pandemic with 642,950 SF.
LEASING ACTIVITY continued its momentum with over 2.1M SF being leased in the fourth quarter as landlords remain aggressive with pricing and offer concessions to capture tenants.
DIRECT ASKING LEASE RATES concluded the year at $2.75/SF on a full-service basis. On average, asking rates for Class A sublet space are $0.30-$0.40/SF lower than direct space.
RECENTLY, developers have set their eyes on underutilized office space. Rexford Industrial purchased two office campuses for $175M and intend to redevelop the properties into new logistic facilities. 275 Valencia in Brea, the largest deal in the fourth quarter at $165M, was purchased by Amazon and will most likely be converted to a distribution hub.
OVER 787K SF was delivered to the market in 2021 with 1.0M SF currently under construction.
ECONOMIC REVIEW
ORANGE COUNTY’S LABOR MARKET continues to improve increasing by 9,500 jobs between October and November.
COUNTYWIDE UNEMPLOYMENT has steadily declined to 4.1% as of November 2021. This is down from 4.7% from the prior month and below the state average of 5.4%.
NEAR-TERM OUTLOOK
THE ORANGE COUNTY OFFICE MARKET displayed signs of recovery in 4Q 2021. Although sublet availabilities are at all-time highs, it has moderately decreased since 2Q 2021 which can be attributed to rental rates for sublet space averaging $0.30- $0.40/SF lower than direct space. The effects of the Omicron variant and current rise in Covid cases are yet to be seen, but we can anticipate some tenants returning to a more cautious approach, causing delays on expansion efforts in early 2022.
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