TENANT GROWTH TREND CONTINUES AMID SHRINKING SUPPLY
Healthy tenant demand continued in the first quarter that also saw further inventory reductions from redevelopment and owner-users buying buildings at deeply discounted prices.
Countywide net absorption totaled 198,474 SF in the first quarter and follows two years of tenant growth totaling 2.2 million SF, the most since the Covid lockdown. But leasing activity remains about 10% less than prior to the pandemic.
The Q1 growth was led by the Central, South and Airport submarkets – which combine for 91,769,521 SF, about 80% of the county’s 114.1-million SF-inventory. The three submarkets posted 422,303 SF of net absorption in the first quarter and more than 2 million SF in the last three quarters.
The total inventory of office buildings also has been shrinking. Dramatically reduced building values since the Covid lockdown in 2020 have moved many companies to take advantage of low prices by acquiring about 3 million SF of space. Additionally, about 3.4 million SF of obsolete space has been removed from inventory through redevelopment as industrial and residential.
In the first quarter there were 21 buildings totaling 1.6 million SF removed from the office inventory. Thirty-six buildings totaling more than 3.1 million SF have been cut from available leasing stock in the last seven quarters.
The 43.3-million-SF Airport submarket is the county’s largest and most active, posting 199,071 SF of tenant growth in Q1. In the last four quarters, net absorption totaled 907,233 SF, helping to drive down the vacancy rate to 15.6% from 17.4%. Ten buildings totaling 855,350 SF were cut from the inventory in the first quarter.
The Central County submarket recorded 130,187 SF of net absorption in Q1 and 279,762 SQ since Q1 last year. In Q1 the 21.4-million-SF inventory was reduced by nine buildings totaling 346,450 SF.
There were 93,135 SF of net absorption in the first quarter in the South County, which posted Q1’s three largest leases: RxSight’s 47,349-SF lease at 75 Columbia in Aliso Viejo at $2.01 per SF. Also leased up was an Irvine Company-owned 44,430-SF building at 260 Progress and vacant since its 2023 completion. The Class A property was asking $3.44 per SF. The Irvine Company also leased 41,105 SF at the University Research Park in Irvine to O5, a private lender also known as IceCap Group. The Class B space was rented for $2.40 per SF.
Among the largest acquisitions in Q1 was the $24.3-million trade by KPM of the 134,471-SF medical office building at 1901 Newport Blvd., Costa Mesa. Seller Jamison Properties purchased the nine story, 40-year-old building for $40.5 million in 2006.
MARKET FORECAST
The war with Iran, rising fuel costs, persistent inflation and interest rates were seen by local business leaders as the biggest challenges facing area companies, according to a Q1 survey by economists at Cal State Fullerton. Other concerns included housing, government deficits, AI and stock market volatility. Tariffs are seen as less of an issue, the survey said.
