Orange County Office Market in Full Swing
The Orange County office market may be on the threshold of moving to a new plateau, finally rivaling the rental pricing established in other core west coast markets. The OC market approached these core market rents in the last development cycle, but fell well below them following the collapse of the mortgage and financial markets.
Now given widely diversified growth in the demand for office space, and a supply of Class A office space with minimal large block availability, rents are increasing faster than the market has recognized. While there is significant publicity and marketing about a very limited number of “coming” new office developments, not all will be built and those that are won’t satisfy current market demand. One or more of these new office developments will announce record rental rate pre leasing, which will establish a new benchmark and push rents higher.
But while we’re waiting for this “big news”, existing quality office product has pricing power rarely seen in the OC market. For example, while the three-building, 373,000 sf Quintana project in Irvine sat empty for years, new sponsorship, re branding and redevelopment of the product succeeded in attracting multiple users who are now vying for the space at rents well above those previously attempted.
The highest quality and best sponsored office buildings are substantially full. In the past, the Irvine Company has spoken passionately and optimistically about OC’s office market, strength and rent growth. Today, the Irvine Company is leading the market quietly, but delivering service, building improvements and amenities that are setting the standard for best in class. As a result, their properties have achieved the highest occupancies and rental rates in the market. Savvy institutional landlords such as The Praedium Group, Prudential, LBA Realty and Equity Office Properties have also reinvested in their office properties resulting in a larger share of the markets leasing and improving economic fundamentals.
My opinion is the cumulative “quiet leasing” in the best in class office properties have established a new plateau for OC office rents. This historic level pricing will serve as a base going forward and will rival the peak pricing anticipated for pre-leasing in new developments. As we approach 2016, the surprise may be, new prices may already be here and we are all just learning about it!
– Jay Carnahan