TENANT GROWTH SURGE CONTINUES; SUBLET SPACE SLASHED
The office market in the second quarter continued its strong recovery from the Covid freefall. The vacancy rate dropped below 13% for the first time since 2021. Available sublet space has been cut in half and is at its lowest in seven years.
Countywide net absorption hit 346,503 SF in the second quarter, bringing the mid year total to 701,266 SF. Net absorption has been positive for 10 of the last 11 quarters, while the 2.2 million SF of net absorption over the last four quarters is the most since 2014-15.
The Q1 growth was led by the Airport, Central and North submarkets – which posted 640,013 SF of net absorption in the second quarter. The three submarkets combine for about 68% of the county’s 114.1-million SF-inventory.
The 43.1-million-SF Airport submarket is the county’s largest and most active, posting 281,495 SF of tenant growth in Q2. In the last four quarters, net absorption totaled 1,593,643 SF, helping to drive down the vacancy rate to 14.4% from 17.4%.
The Central County submarket recorded 270,535 SF of net absorption in Q2 and 279,762 SQ since Q1 last year. In Q1 the 21.4-million SF inventory was reduced by one building totaling 108,942 SF.
There were 293,558 SF of negative net absorption in the second quarter in the South County. The submarket’s 13.9% vacancy rate is down from 17.5% since 2023.
The largest lease of the second quarter was a renewal to Z Supply for a 54,745-SF building owned by CJ Segerstrom & Sons on Hyland Avenue in Costa Mesa.
The Irvine Company landed two other large leases in Irvine. New tenant RWTinc signed a 70-month lease for 43,854 SF at 4 Park Plaza. The effective triple-net rent was reported at $3.03 per SF. New tenant BD signed a lease at $3.75 per SF for 42,901 SF at 17700 Laguna Canyon Road.
The largest sale was the acquisition of the The Chet Holifield Federal Building, aka The Ziggurat, by an affiliate of the Hoag Memorial Hospital Presbyterian for $207 million from the federal General Services Administration. Hoag has not disclosed its plans for the property.
Leading transactions for more traditional office property was the $14-million purchase of the 48,183-SF building on 2.85 acres at 95 Argonaut in Aliso Viejo by Meritage Homes of Scottsdale, AZ, which has approvals to redevelop the site with 61 townhomes. The deal was valued as a land-value sale. The property last sold in 2011 for $4.6 million.
Easthill Corporate Plaza, a 40,066-SF building at 175 N Riverview Drive in Anaheim, was purchased by investor Madison Partners of Los Angeles for $9.5 million. It last sold in 2020 for $6.6 million.
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 Q2 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.
