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IRVINE, CA-Office rent growth in Orange County makes a colorful patchwork quilt on Jones Lang LaSalle's heat map (below), which targets asking rent growth in the sector over the past 12 months. The market is extremely submarket specific, with vacancies declining within pockets of space; stronger areas like Mission Viejo have the best freeway access, and class-A product is seeing high demand, Jeff Ingham, JLL's senior managing director, tells GlobeSt.com.

“We're combining class A and class B in this heat map, but there's a dichotomy between the classes for each location,” says Ingham. “In some respects, there's some of the 'devil in the details.' ”

One example of this 'devil' is the Irvine Spectrum submarket, which has historically had strong rental rates. On the map, the submarket is in gray, indicating little to no rental growth, but in reality the high-rise sector of this submarket has seen rents increase by 6% while the low-rise sector has seen rents decrease. “If you average the two together, it says little to no growth, but that's the reason,” says Ingham.  Similarly, space in Fashion Island with an ocean view commands rents $1 per square foot higher than space without one.

“We're starting to see positive momentum in the market,” says Ingham. “There's been positive leasing velocity over the last two years, and it's finally hitting bottom.” The Airport submarket, which includes South Coast Plaza, has seen strong rental-rate growth as vacancies are down from where they were two years ago, he adds.

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For an enlarged view of the map, click here.

On the other side of the coin, Huntington Beach and Lake Forest experienced very negative rent growth of 3% or more below what it was a year ago, according to the map. “Class-A rates have been trending up by about 1%, and class-B rates are on the decline,” says Ingham. “Similar to the Spectrum submarket, there has been a difference [in rental-rate growth] depending on the kind of product of any type. In the Huntington Beach office market, class-B office space is the bulk of it—it's not a core location for office space, and that's the main reason why it's trending down; it's a secondary location as opposed to, say, South Coast Plaza. Seal Beach, on the other hand, people like because it's halfway between L.A. and [Central] Orange County.”

Looking ahead, Ingham sees rents moving forward, particularly in well-located properties in strong submarkets like the Irvine Spectrum. “The hot markets are going to maintain and sustain rental markets, and the tertiary micro-markets will follow suit based on lack of product.”

There will still be a flight to quality, since tenants are doing more with less square footage, he adds. “Rents are going up, but as tenants get more efficient, they want to be in more-efficient space. Class-A buildings tend to be more efficient and tend to be better located. At some point in time, when pricing gets so inflated, tenants will go to second-tier buildings.”

In addition, tenants want to be close to amenities and the freeway, and Ingham adds that he is also seeing more build-to-suits. “Tenants are much more focused on the type of building they're in and how efficient it is. I believe over time, as tenants change their views, non-efficient buildings will become obsolete.”

As GlobeSt.com reported last week, the office market in Orange County is tightening to the point where not only class-A space is hard to find, but class-B vacancy is also plummeting in some areas. Scott Meserve, EVP of the Koll Co., told GlobeSt.com that in Brea, class-B vacancy rates should be entering the single digits shortly.