Studley: OC Office Leasing Slows Down

ORANGE COUNTY, CA-Despite the overall positive news about the Orange County office market recovery, Studley reports that the office market is actually experiencing a lull in leasing activity as office-using employment numbers have shown minimal growth. The pace of leasing is about 1 million square feet below the average of the last five years, the firm reports.

In addition, class-A product is trailing leasing as calculated over a four-quarter basis, according to Studley. Leasing totaled only 4.3 million square feet in the third quarter, falling by 17.2% from the second quarter and 20.9% below its long-term average of 5.4 million square feet. At the same time, demand has shifted from class-A to class-B and –C product.

“Class-A availability, currently 20.6%, is nearly double the class-B and –C availability,” says Royce Sharf, EVP and branch manager of Studley's Orange County office. “Still, much of the most-coveted space in highly desirable submarkets such as Irvine Spectrum, Fashion Island and the Airport Area has already been taken, and the number of large blocks of class-A space has tightened considerably.” At the end of the third quarter, there were only 10 blocks of class-A space of 100,000 square feet or more available, according to Studley.

Also, owners of the highly desirable class-A properties have started to increase asking rents and owners of all classes of properties have pulled back on concessions, as GlobeSt.com recently reported. As a result, there was a slight increase in asking rents at the close of the third quarter. Overall asking rents inched up as compared to last quarter, rising by 1.2% to $22.98 per square foot. Class-A asking rents rose as well, increasing by 1.1% to $23.95 per square foot.

Renewals are accounting for more and more of the larger transactions as tenants remain cautious with regard to capital outlays and the big blocks of quality space continue to diminish, the firm also reports. JPMorgan Chase extended its 129,300-square-foot lease at Alton Corporate Plaza in the Airport Area, and Conifer Health Solutions renewed its 90,124-square-foot lease at Arena Corporate Center in Anaheim.

The health of the housing market and mortgage banking industry will play a significant role in the level of Orange County's office leasing activity, Studley also reports. Currently, mortgage refinancing activity has fallen off, and originations are anemic. “Given the uncertainty in the market, landlords are eager to retain tenants,” says Sharf. “While there have been some pockets of high demand, expansions and relocations are not taking place across the board, and most tenants still have a wide range of options to consider and significant negotiating power.”