David Giglio Giglio: “Over the last several years, Orange County has evolved from a very conservative and traditional market to become a more progressive and cutting-edge market attracting tech companies and other industries, which has strengthened the economy.”

ORANGE COUNTY, CA—The combination of consistent demand, slower development pace and older-property repurposing has made a sharp decline in Orange County’s office vacancy possible, Transwestern’s VP of agency licensing David Giglio tells GlobeSt.com. The firm recently revealed that office vacancy levels are continuing to decrease around the region to levels last seen before the recession. In addition, and possibly as a result, speculative office development has returned to the region, with a total of 1.5 million square feet now underway and another 2.5 million square feet proposed. We spoke exclusively with Giglio about the reasons for this tightening, who’s taking space and the effect this will have on new development.

GlobeSt.com: What do you believe has led to the sharp decline in office vacancy in Orange County?

Giglio: The Orange County market offers a diverse workforce, great location and quality of life that continues to attract tenants in all industries. As the economy improved from the Great Recession, Orange County’s ability to maintain consistent tenant demand from a variety of sectors resulted in several quarters of consistent absorption and a pre-recession vacancy rate (lowest vacancy rate since early 2008) at the end of second quarter of 2016.

During the early stages of this cycle, new construction was primarily focused around build-to-suit opportunities such as Hyundai and Broadcom. In 2013, we saw new speculative office development starting to emerge, but it was isolated to the Airport and South Orange County areas. Around that same time, many older and obsolete properties—that traditionally would have been a drag on the vacancy—started going through redevelopment and experiencing new life. The combination of consistent demand, slower development pace and older-property repurposing make the sharp decline in vacancy possible.

GlobeSt.com: What types of tenants are now seeking office space in this market, and what are they seeking in this space?

Giglio: Historically, tenant activity was dominated by only a few industries, but during this cycle, tenant activity has been very diverse, which is good for the overall Orange County market. While tech companies continue to focus their interest primarily in the Airport and South Orange County areas, we have seen activity throughout the county from small to mid-size professional-service firms in the legal, finance and insurance industries, as well as real estate, construction and healthcare.

Tenant requirements across many sectors have become more diverse as well. We see tenant interest ranging from traditional/conservative groups looking for functional space at a good value to progressive groups looking for cutting-edge solutions and a creative environment. We are also beginning to see a shift in traditional tenant requirements and increased interest in progressive space. We describe “progressive space” as traditional office space that has been improved with enough creative elements to give it a new and exciting feeling, yet maintains many traditional elements that more conservative clients and employees find comforting/valuable. Companies are also responding well to properties that offer a wide variety of on-site amenities such as outdoor seating, Wi-Fi, collaborative work areas, fitness elements and food establishments.

GlobeSt.com: What effect will the sharp decline in vacancy have on new development?

Giglio: The sharp decline in vacancy is already having an effect on new construction in the Airport and South Orange County areas. While the vacancy has been dropping, Orange County has also experienced 13 straight quarters of increasing rental rates. Although the rapid rise in rental rates may have had an effect on the velocity of leases, the number of tenants showing a strong desire to make Orange County their home remains steady. As vacancy continues to decline and rental rates increase, we expect to see more projects breaking ground and new development expanding into Central and North Orange County.

GlobeSt.com: What else should our readers know about the Orange County office market?

Giglio: Over the last several years, Orange County has evolved from a very conservative and traditional market to become a more progressive and cutting-edge market attracting tech companies and other industries, which has strengthened the economy. Companies and individuals from around the world are looking at Orange County as a preferred destination. With this change we have seen high-rise residential development, creative and tech campuses and the expansion of the live/work/play lifestyle ensuring Orange County will be a destination of choice for a long time.

With developers leveraging development and redevelopment opportunities across all property types, how can you capitalize on this activity? Join us at RealShare Orange County on August 16th for impactful information from the leaders in Orange County CRE. Learn more.