OC4Q16
Fourth Quarter 2016 MARKET REPORT
Orange County Office
WHAT A RIDE. For the calendar year 2016, the Orange County office market was
VACANCY VS.
AVERAGE ASKING LEASE RATE
characterized by heightened activity levels and an above-average number of largescale transactions. Negative absorption of 300,000 square feet in the fourth quarter
PercentRate
was but a blip on the year in total, which finished with a positive 700,000 square
18%
feet of absorption. With the lowest unemployment rate in Southern California and
16%
$2.50
continuing job growth, rental rates for office space in Orange County are continuing
14%
$2.00
to climb. Asking rates are now up more than 10% year-over-year ($2.50 vs. $2.26),
12%
$1.50
$3.00
FORECAST
$2.50
with virtually every submarket contributing to the overall improvement.
10%
$1.00
10.25%
VACANCY. The vacancy rate was 10.25% in fourth quarter 2016, up a bit from the
8%
third quarter’s 9.99%, but down from last year’s fourth quarter rate of 10.27%. Local
6%
$0.50
$0.00
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
companies are expanding and account for most of the positive absorption, helping
VACANCY: Total Vacant Space Divided by Total Existing Inventory
to fill up many of the buildings in the Airport and South County markets.
AVERAGE ASKING LEASE RATE: NNN / SF / Month
LEASE RATES. Orange County average asking rental rates continue to rise at
a very healthy clip year over year. The Orange County office average asking rent
TRANSACTION VOLUME &
NUMBER OF TRANSACTIONS
of $2.50 per square foot was up from the third quarter 2016 rate of $2.49, and up
substantially from last year’s fourth quarter rate of $2.26.
SF Millions
Number
14
TRANSACTION ACTIVITY. Leasing activity for the fourth quarter totaled 6.16
2,800
2,269
12
2,400
million square feet in 447 separate transactions. Notable activity this quarter included
10
2,000
QLogic’s 105,600 square foot lease in Irvine Spectrum, Toshiba Corporation’s 70,558
8
1,600
square foot lease in Lake Forest, and TriMavin, LLC’s 13,216 square foot deal in
6
1,200
Santa Ana.
4
800
2
400
0
0
2007
2008
2009
SALES
2010
LEASES
2011
2012
2013
2014
2015
2016
NUMBER OF TRANSACTIONS
Market Statistics
Change Over Last Quarter
4Q 2016
3Q 2016
4Q 2015
% Change Over Last Year
Vacancy Rate
UP
10.25%
9.99%
10.27%
-0.19%
Availability Rate
UP
14.79%
14.77%
14.45%
2.35%
Average Asking Lease Rate
UP
$2.50
$2.49
$2.26
10.62%
Sale & Lease Transactions
UP
6,167,077
4,598,511
6,078,533
1.46%
Gross Absorption
DOWN
1,840,961
2,713,535
2,474,706
-25.61%
Net Absorption
NEGATIVE
-305,994
427,301
103,475
N/A
OC4Q16 Office
LEASE RATES. We expect the average asking lease rates to increase by 3–4% over the coming year.
Forecast
VACANCY. With the lowest unemployment rate in the Southern California region, and job growth spurring demand as companies
expand their payrolls, we anticipate vacancy will continue to decrease slightly in the first half of the year. Vacancy should level off
in the latter part of the year as new development product is delivered.
OVERALL. 2016 proved to be positive for the Orange County office market as 767,909 square feet of office space was absorbed
by the market and 2.3 million square feet hit the construction pipeline. The Orange County office market continues to experience
positive momentum as occupancy levels steadily improve as a result of consistent demand. The office market sector posted strong
gains, with higher rents and lower vacancies helping to fuel the construction of many new office buildings.
CONSTRUCTION. Total space under construction is roughly 2.4 million square feet. The
NEW DELIVERIES & NET ABSORPTION
VS. AVAILABILITY RATE
most noteworthy projects are the 1.1 million square foot owner-occupied office campus for
Broadcom in Irvine and a 205,000 square foot owner-occupied project for Microvention in Aliso
Viejo. In addition, a 400,000 square foot office component at the mixed-use Flight at Tustin
Legacy development in Tustin is expected to break ground in early 2017.
SF Millions
ABSORPTION. The Orange County office market posted 305,994 square feet of negative net
Percent
5
27%
4
24%
3
21%
2
absorption in the fourth quarter, but totaled 706,270 square feet of positive net absorption for
the year. The fourth quarter negative result was primarily a result of several tenants resizing,
including Qlogic and Cal Trans. Absorption is expected to remain positive through 2017.
18%
14.79%
AVAILABILITY. Available direct / sublease space came in at 14.79% at the close of the
fourth quarter, which was slightly up from 2016’s third quarter rate of 14.77% and from
2015’s fourth quarter rate of 14.45%. However, given strong tenant demand, the availability
is projected to drop in the near term. The historical average for net absorption should continue
into the near future, and will outpace the delivery of new space.
1
15%
0
12%
-1
9%
-2
6%
-3
3%
-4
0%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
NEW DELIVERIES: New Construction Delivered to the Market
NET ABSORPTION: Changes in the Amount of Occupied Space
from One Quarter to the Next
AVAILABILITY: Total Amount of Space that is Available whether
Occupied, for Sublease, or Available at a Future Date
Significant Transactions
Sales
Property Address
Submarket
Class
Square Feet
Sale Price
Buyer
Seller
Irvine
A
2,185,875
$387,000,000
Alianze Real Estate America
LBA Realty
1750 E. 4th St.
Santa Ana
A
229,989
$64,000,000
Boyd Santa Ana, LLC
1750 Acquisitions Partners, LLC
3 Hutton Centre Dr.
Santa Ana
A
198,161
$50,500,000
Cypress Office Properties
TIAA
Newport Beach
B
76,834
$21,400,000
C III Capital Partners, LLC
The Blackstone Group, LP
Irvine
B
55,474
$14,500,000
Easter Seals Southern California CapRock Partners
Submarket
Class
Irvine Spectrum
A
Anaheim
210 Commere Dr.
5 Hutton Centre Dr.
2957-3355 Michelson Dr. - 13 Properties
3300 Irvine Ave.
1063 McGaw Ave.
Leases
Property Address
15485 Sand Canyon Ave.
1500 S. Douglass Rd.
1920 Main St. - Renewal
Square Feet
Transaction Date
Tenant
Owner
105,600
Dec-2016
Qlogic
The Irvine Company
B
63,875
Nov-2016
Carrington Mortgage Services
Multi-Employer Property Trust
Irvine
B
62,850
Dec-2016
Tri Mark Raygal
The Irvine Company
Santa Ana
A
57,491
Nov-2016
Michael Baker International
Equity Office
Irvine
A
30,103
Oct-2016
Sullivan Curtis Monroe
SRI Nine Main Plaza, LLC
VOIT REAL ESTATE SERVICES
2
OC4Q16 Office
INVENTORY
Number
of
Bldgs.
Net
Rentable
Square Feet
Square
Feet
U/C
V A C A N C Y & L E A S E R AT E S
ABSORPTION
Square
Feet
Planned
Square
Feet
Vacant
Vacancy
Rate
4Q2016
Square
Feet
Available
Availability
Rate
4Q2016
Average
Asking
Lease Rate
Net
Absorption
4Q2016
Net
Absorption
2016
Gross
Absorption
4Q2016
Gross
Absorption
2016
Airport Area
Costa Mesa
Irvine
Newport Beach
Santa Ana
Airport Area Total
71
257
121
15
464
7,294,628
24,083,317
9,964,166
2,448,402
43,790,513
0
537,258
44,000
0
581,258
442,476
782,000
68,346
0
1,292,822
917,483
2,418,881
805,140
449,719
4,591,223
12.58%
10.04%
8.08%
18.37%
10.48%
1,251,129
4,866,028
1,141,270
381,570
7,639,997
17.15%
20.20%
11.45%
15.58%
17.45%
$2.51
$2.84
$3.52
$2.42
$2.97
(19,621)
(190,940)
13,117
(19,479)
(216,923)
138,764
(440,775)
185,893
9,989
(106,129)
131,410
597,407
162,474
70,837
962,128
656,089
2,040,113
905,906
463,350
4,065,458
17
83
164
42
306
1,949,215
7,147,505
12,300,825
2,224,578
23,622,123
0
0
0
0
0
300,000
702,325
0
1,179,124
2,181,449
331,077
602,623
1,791,047
458,409
3,183,156
16.99%
8.43%
14.56%
20.61%
13.48%
323,363
788,903
1,915,271
505,141
3,532,678
16.59%
11.04%
15.57%
22.71%
14.95%
$2.48
$2.10
$1.89
$2.17
$1.99
10,110
(27,561)
18,908
(14,941)
(13,484)
46,437
(84,526)
120,264
(91,009)
(8,834)
27,982
78,889
149,535
20,781
277,187
158,262
365,833
834,926
185,173
1,544,194
81
42
17
30
4
10
8
5
197
5,829,936
4,060,171
1,115,193
2,432,708
142,069
712,038
267,589
288,094
14,847,798
0
0
0
0
0
0
0
0
0
0
120,000
0
0
0
0
0
0
120,000
437,500
421,792
161,612
163,466
0
62,667
35,500
28,647
1,311,184
7.50%
10.39%
14.49%
6.72%
0.00%
8.80%
13.27%
9.94%
8.83%
694,152
568,865
253,796
341,072
850
61,454
37,699
28,647
1,986,535
11.91%
14.01%
22.76%
14.02%
0.60%
8.63%
14.09%
9.94%
13.38%
$2.04
$2.16
$1.74
$1.77
$1.25
$0.00
$1.60
$2.08
$2.01
12,740
(15,043)
(56,474)
11,933
0
50,966
(2,081)
14,162
16,203
61,597
23,559
(24,949)
50,203
0
77,386
637
5,332
193,765
53,983
35,148
16,371
23,142
0
50,966
1,158
18,992
199,760
243,522
250,723
123,407
103,653
0
139,509
12,492
19,921
893,227
43
2
10
157
5
33
10
40
36
6
12
17
371
3,124,343
91,876
798,721
10,801,624
192,434
1,845,389
1,750,428
2,099,869
1,925,414
250,472
502,157
876,712
24,259,439
205,000
0
0
1,558,796
0
0
0
0
0
0
0
0
1,763,796
0
0
0
414,332
0
0
0
0
110,000
0
0
0
524,332
281,801
0
88,119
717,257
20,834
259,415
52,681
185,335
209,611
14,214
35,189
138,014
2,002,470
9.02%
0.00%
11.03%
6.64%
10.83%
14.06%
3.01%
8.83%
10.89%
5.67%
7.01%
15.74%
8.25%
533,440
0
152,439
1,144,748
22,414
301,454
63,671
316,853
265,171
17,681
47,697
140,888
3,006,456
17.07%
0.00%
19.09%
10.60%
11.65%
16.34%
3.64%
15.09%
13.77%
7.06%
9.50%
16.07%
12.39%
$3.24
$0.00
$2.51
$3.19
$0.00
$3.55
$0.00
$2.12
$2.19
$2.11
$2.30
$2.55
$2.80
(6,707)
0
(1,339)
(29,690)
0
19,406
(3,766)
(48,045)
2,272
3,709
(3,723)
0
(67,883)
(51,644)
0
(15,011)
514,508
8,061
39,365
1,887
43,041
10,057
6,519
(16,817)
16,536
556,502
34,345
0
1,146
159,455
0
47,180
150
34,278
24,978
6,269
5,152
3,600
316,553
131,312
0
101,543
1,332,414
15,953
239,040
22,517
234,959
146,037
14,691
30,428
40,296
2,309,190
28
33
20
43
12
7
4
12
159
1,497
1,949,395
1,995,993
1,562,070
2,484,908
687,842
473,787
143,361
484,540
9,781,896
116,301,769
0
0
0
44,500
0
0
0
0
44,500
2,389,554
0
0
0
0
0
0
0
0
0
4,118,603
349,983
78,848
65,626
175,555
40,489
42,034
8,802
74,026
835,363
11,923,396
17.95%
3.95%
4.20%
7.06%
5.89%
8.87%
6.14%
15.28%
8.54%
10.25%
415,186
83,233
68,037
263,223
40,489
55,113
13,221
95,963
1,034,465
17,200,131
21.30%
4.17%
4.36%
10.59%
5.89%
11.63%
9.22%
19.80%
10.58%
14.79%
$1.93
$1.45
$1.82
$2.25
$0.00
$2.83
$1.06
2..02
$2.10
$2.50
6,042
(3,535)
(613)
(25,731)
(6,834)
6,360
404
0
(23,907)
(305,994)
(18,641)
9,009
(13,385)
94,428
(8,313)
10,435
(363)
(2,204)
70,966
706,270
33,043
12,192
900
22,615
3,215
6,360
7,008
0
85,333
1,840,961
82,385
60,367
75,314
280,483
21,302
21,125
16,824
15,691
573,491
9,385,560
128
309
27
25,417,505
17,042,174
1,330,834
581,258
0
0
847,000
445,822
0
3,386,463
1,100,566
104,194
13.32%
6.46%
7.83%
4,887,937
2,583,684
168,376
19.23%
15.16%
12.65%
$3.20
$2.52
$1.85
(258,709)
65,391
(23,605)
(209,027)
134,364
(31,466)
530,685
406,912
24,531
2,594,227
1,375,394
95,837
44
206
56
7,335,977
13,848,126
2,438,020
0
0
0
1,879,449
302,000
0
912,634
2,049,499
221,023
12.44%
14.80%
9.07%
1,050,401
2,178,371
303,906
14.32%
15.73%
12.47%
$2.23
$1.97
$1.51
15,740
(10,175)
(19,049)
21,387
4,355
(34,576)
106,966
147,345
22,876
602,757
829,037
112,400
27
146
24
3,185,191
10,733,275
929,332
0
0
0
120,000
0
0
469,882
788,226
53,076
14.75%
7.34%
5.71%
674,253
1,259,206
53,076
21.17%
11.73%
5.71%
$2.19
$1.93
$1.74
(9,520)
25,357
366
6,233
186,487
1,045
50,422
146,329
3,009
242,266
637,115
13,846
61
300
10
7,382,191
16,383,380
493,868
1,763,796
0
0
453,332
71,000
0
679,459
1,321,103
1,908
9.20%
8.06%
0.39%
942,608
2,061,940
1,908
12.77%
12.59%
0.39%
$3.15
$2.49
$1.60
(6,004)
(61,229)
(650)
237,090
320,789
(1,377)
105,246
208,667
2,640
753,992
1,547,939
7,259
23
114
22
2,465,352
6,409,108
907,436
0
44,500
0
0
0
0
284,720
515,725
34,918
11.55%
8.05%
3.85%
333,265
658,509
42,691
13.52%
10.27%
4.70%
$2.53
$1.89
$0.00
(31,002)
6,580
515
(7,751)
75,293
3,424
43,376
37,527
4,430
178,800
369,422
25,269
45,786,216
64,416,063
6,099,490
116,301,769
2,345,054
44,500
0
2,389,554
3,299,781
818,822
0
4,118,603
5,733,158
5,775,119
415,119
11,923,396
12.52%
8.97%
6.81%
10.25%
7,888,464
8,741,710
569,957
17,200,131
17.23%
13.57%
9.34%
14.79%
$2.89
$2.17
$1.60
$2.50
(289,495)
25,924
(42,423)
(305,994)
47,932
721,288
(62,950)
706,270
836,695
946,780
57,486
1,840,961
4,372,042
4,758,907
254,611
9,385,560
Central County
Anaheim
Orange
Santa Ana
Tustin
Central County Total
North County
Anaheim Hills
Brea
Buena Park
Fullerton
La Habra
La Palma
Placentia
Yorba Linda
North County Total
South County
Aliso Viejo
Dana Point
Foothill Ranch
Irvine Spectrum
Laguna Beach
Laguna Hills
Laguna Niguel
Lake Forest
Mission Viejo
Rancho Santa Margarita
San Clemente
San Juan Capistrano
South County Total
West County
Cypress
Fountain Valley
Garden Grove
Huntington Beach
Los Alamitos
Seal Beach
Stanton
Westminster
West County Total
Orange County Total
Airport Area
Class A
Class B
Class C
Central County
Class A
Class B
Class C
North County
Class A
Class B
Class C
South County
Class A
Class B
Class C
West County
Class A
Class B
Class C
Orange County
Class A
Class B
Class C
Orange County Total
.
283
1,075
139
1,497
This survey consists of office properties 25,000 square feet and larger in size, representing both single tenant and multi-tenant buildings. The lease rates are based on a full-service gross basis.
VOIT REAL ESTATE SERVICES
3
OC4Q16
Fourth Quarter 2016 MARKET REPORT
Orange County Office
Rents Hiking Despite Rising Vacancies
Product Type
by Doug Killian
SENIOR VICE PRESIDENT / PARTNER, IRVINE
C LA S S A : Most prestigious buildings
Many investors feel that Orange County, like Los Angeles, is somewhat insulated from a potential
downturn given its diverse tenant base composed of small businesses in a variety of industries
including legal, real estate / financial services, technology, medical and entertainment. The overall
fundamentals continue to be strong and most investors feel any potential pending tax relief
will only help small business and spur economic growth locally. Institutional capital continues
to target Orange County with its attractive combination of executive housing, institutions for
higher learning and concentration of millennials in the workforce.
A recent example of this investment trend in the Orange County office market is the pending
sale of Broadcom’s new campus (73 acres and over 1 million square feet) in Irvine. This will
be the largest office project to be built in Orange County in over a decade. The first phase (four
buildings) is to be delivered in early 2018. Broadcom will likely lease back two of the buildings
totaling 640,000 square feet, but is disposing of the campus after shedding over 700 jobs
following its sale to Avago (U.S. headquarters in San Jose).
Orange County’s employment picture remained healthy in 2016, adding 43,000 new jobs and
expecting to gain another 39,000 in 2017. Although the labor pool increased, the Orange County
office market experienced a slight cooling off in the fourth quarter as compared with the previous
quarter. Net absorption was negative 305,994 square feet for the fourth quarter. This is due in
part to the resizing of several tenants, including Qlogic and Cal Trans. Office rents are just below
peak levels (averaging $2.50 per square foot) and were still increasing in the fourth quarter,
posting an annual increase of 10.62% over 2015. Vacancy rates are slightly up but still at a very
manageable level of 10.25%. With just a small handful of new office developments underway, we
see these positive trends continuing through 2017. Notable new office developments are Irvine
Company’s 400 Spectrum, 467,000 square feet which will be delivered in September 2017 and
Trammell Crow’s Boardwalk, 537,000 square feet with a scheduled delivery of August 2017.
Both investors and users have been enjoying the low cost of capital to acquire long-term
stabilized investments. The Fed’s recent rate hike, while small, sends a message to investors
that values and cap rates may stabilize for the first time in several years. Many feel that a
modest increase in rates will not slow down the market in a significant way, as a rise in rates
is indicative of economic expansion and anticipated rent growth.
www.VoitCo.com
C LA S S B : Buildings competing for a wide
range of users with rents in the average range
for the area. Building finishes are fair to good for
the area, and systems are adequate. However,
Class B buildings cannot compete with Class A
buildings of the same price.
C LA S S C : Buildings competing for tenants
requiring functional space at rents below the
area average.
Submarkets
A IR P O RT A R E A
Costa Mesa, Irvine, Newport Beach
C E NT R A L C O UNT Y
Anaheim, Orange, Santa Ana, Tustin
NO RT H C O UNT Y
Anaheim Hills, Brea, Buena Park, Fullerton,
La Habra, La Palma, Placentia, Yorba Linda
S O UT H C O UNT Y
Aliso Viejo, Dana Point, Foothill Ranch,
Irvine Spectrum, Laguna Beach, Laguna Hills,
Laguna Niguel, Lake Forest, Mission Viejo,
Rancho Santa Margarita, San Clemente,
San Juan Capistrano
WE S T C O UNT Y
Cypress, Fountain Valley, Garden Grove,
Huntington Beach, Los Alamitos, Seal Beach,
Stanton, Westminster
Please Contact Us
for Further Information
Tony Tran
Market Research Analyst
[email protected]
competing for premier office users with rents
above average for the area. Buildings have
high-quality standard finishes, state-of-the-art
systems, exceptional accessibility and a definite
market presence.
Anaheim, CA
714.978.7880
Inland Empire, CA
909.545.8000
Irvine, CA
949.851.5100
Los Angeles, CA
424.329.7500
This survey consists of properties representing both single tenant and multi-tenant buildings. The lease rates are based on a fullservice gross basis. The information contained in this report is gathered from sources that are deemed reliable, but no guarantees
are made as to its accuracy. This information is for Voit Real Estate Services’ use only and cannot legally be reproduced without
prior written consent from the management of Voit Real Estate Services. ©2017 Voit Real Estate Services, Inc. License #01991785.
San Diego, CA
858.453.0505
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