MARKET DRIVERS
AS A RESULT OF COVID-19, companies that have made the difficult decision to vacate early have pushed sublease availabilities to levels not seen since 2008. Available sublease space increased from 2.6M SF to over 3.6M SF YOY.
AVERAGE ASKING RATES continue to soften in 1Q21, marking it the 4th straight quarter of negative rent growth. With average asking rates at $2.73/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. Currently, sublease availabilities on average are $0.40/SF lower than direct space.
LEASING ACTIVITY declined 22% YOY to conclude the quarter at 1.93M SF. Co-working company, Industrious, leased 53,478 SF at WeWork’s old space located at 100 Bayview, Newport Beach. Co-working companies that struggled throughout the pandemic and vacated spaces will be a focal point for Industrious as the existing buildouts can prove cost-effective. They plan to expand their footprint nationwide by over 1M SF in 2021.
ECONOMIC REVIEW
IN 2020 COVID-19 caused many business closures and company layoffs. Since then, Orange County has continued to recover, reporting an unemployment rate of 6.8% as of February 2021. This is down from 7.3% reported from the prior month and below the state average of 8.4%.
NEAR-TERM OUTLOOK
VACANCIES AND SUBLEASE AVAILABILITIES will be tested in the coming quarters which will apply pressure on rents as landlords compete for tenants in the market. Additionally, leasing activity may continue to soften with companies waiting for the widespread distribution of vaccinations to increase. We can expect additional leases from Industrious throughout the year as they remain hopeful that demand for co-working space increases.