2022 Q3 OFFICE REPORT ORANGE COUNTY DEMAND WEAKENS UNDER LABOR MARKET PRESSURES
2022 Q3 OFFICE REPORT ORANGE COUNTY shows nationally, a white-hot labor market is confounding a return-to-office push among employers that started last year. In samplings of 8,000 workers, Gallup said the desire to work exclusively from home has more than doubled since last fall. Sixty percent said they would change jobs to work remotely. Orange County tenant demand is mirroring U.S. trends posting another loss in the third quarter, as companies continue to balk at pushing post-Covid return-to-office mandates on workers and amid concerns about slower growth, inflation, and the rising cost of credit.
• The county’s sublease total is 4.1 million SF or 19% of available space. Sublease space increased by 359,733 SF in Q3, the most in any quarter since the lockdown. Second-hand space has grown by 865,043 SF this year and is up 1.8-million SF since mid-2020.
• Negative net absorption totals 660,082 SF year-to-date with 501,928 SF of negative net absorption in the third quarter, the third largest quarterly retreat since the lockdown. Companies shed 809,986 SF in 2020 and 1.2 million SF in 2021.
Third-quarter net absorption was in the red in four of the county’s five submarkets.
• The South County submarket has been least affected by the pandemic. Since early 2020, total occupancy in the 27-million-SF submarket has increased by 392,634 SF, net absorption is positive 501,383 SF, four buildings totaling 635,341 SF have been added and the vacancy rate virtually remains unchanged at 11.8%.
• The 22.5-million-SF Central County submarket posted the largest loss in the third quarter with 248,969 SF going back on the market. Central County tenants have shed 721,449 SF of space year to date, driving up the vacancy rate 350 basis points since last year to 15.8%.
• The Airport submarket, the county’s largest, accounts for 38% of the total inventory. Negative net absorption totals 1.8 million since the lockdown but only 4,971 SF of that loss has come this year. In the Airport submarket in Q3 there was 208,184 SF of sublease space added to inventory. Forty-three percent of available sublease space is in the Airport submarket.
• Until this year, the 14.5 million SF North County submarket had a 6.4% vacancy rate. In the last three quarters its vacancy rate has risen to 9.2% on negative absorption of 403,759 SF year to date, including 175,661 SF of sublease space added in Q3.
Among the top 10 Orange County buildings sold in Q3, two were purchased by large midwestern industrial developers with redevelopment plans.
The largest new lease of Q3 was for 52,309 SF of Class B space at 4350 Von Karman Ave., Newport Beach, at $2.67 per SF full service.
MARKET FORECAST
2022 Q3 OFFICE REPORT ORANGE COUNTY shows Forty-one percent of Orange County executives expect significant or some growth in their respective industries, compared to 33.4% in the second quarter, according to a business expectations survey by Cal State Fullerton economists, who report the results are in contrast to expectations of lower growth for the regional economy overall.
