Why Class-B Office is Dominating in OC

Fleener: “Orange County is a very unique market compared to most other markets; we seem to have extreme swings in pricing: really low lows and really high highs. But if you graph it over a 20-year period, the average growth is only 3%.”

IRVINE, CA—With up to 30% price differentials between class-A and class-B office space and conversions and renovations being better suited to those smaller buildings, it’s not surprising that absorption is greater in that space within the Orange County market, PM Realty Group’s SVP Oliver Fleener tells GlobeSt.com. According to the firm, the class-B office sector has dominated with 474,804 square feet of direct absorption growth in the 12 months prior to the end of Q2.

In fact, the firm reports that limited construction deliveries and negative absorption have caused class-A direct vacancy rates to increase by 30 basis points to 12.5% since June 2016, while the class-B direct vacancy rate has experienced a year-over-year decline of 90 basis points to 9.9%. The class-B category also dominated in rental-rate growth, with class-A full-service gross asking rents increasing by 4.4% to $2.94 per square foot over the prior 12 months and class-B rents also appreciating 5.5% to $2.35 per square foot over the same time frame.