Orange County's large office leases, defined as 30,000 square feet or more, increased in the first quarter of 2019 compared to early 2018, according to a new report from JLL. The leasing activity reduced the overall availability of large floor slabs. The number of available space over 50,000 square feet decreased from 66 in the previous quarter to 59. There were a total of 29 leases for a total of 1.8 million square feet.
"Two factors that have driven the surge in large leasing deals this year are tenant consolidation and local economic expansion." Monica Moore, CEO at JLL, tells GlobeSt.com. “Tenants in all sectors are continuing to develop and are reducing occupancy costs by consolidating office space. At the same time, local economic expansion continued in 2019. According to EDD, the current unemployment rate in Orange County is 2.4%, the lowest level since 2000. Despite the tight labor market, Orange County has created 18,600 jobs since this last year. Employment growth remains linked to the demand for office space. "
The airport area had the most large slab leasing activity for the quarter, accounting for 55% of total leases. This market also had the greatest availability of large blocks of office space. “The airport area dominated leasing activities and outperformed other sub-markets in the district. The leasing activities were spread across the submarkets in Costa Mesa, Irvine and Newport Beach, ”says Moore. “The Orange County market had 1.8 million square feet of block leasing activity, nearly 1.0 million square feet of which was in the airport area. Both the Central and South Counties submarkets had activity in excess of 350,000 square feet while West County's total area was 180,000 square feet. "
Even better, the leasing activities come from a diversified group of companies and industries. This is a significant shift from the last cycle's large floor slab residents who were mainly from the financial sector and mortgage lenders. “While the leasing activities in the previous real estate cycle were largely determined by the financial services sector, especially by mortgage companies, the current market landscape is well diversified,” says Moore. "Users from various industries have rented more than 30,000 square meters of office space, including professional and business services, government, technology and collaboration as the most active employees, for a total of 1.2 million square meters."
Despite the diversity of tenants, there is a common theme what tenants look for in an office space. “A progressive room design, coupled with the right mix of amenities, are the main drivers that attract these tenants,” says Moore. "Co-working groups and tech companies are particularly focused on the office experience for their user groups."
This is not a one-off high in leasing. Moor anticipates that large block leasing activities will remain active through the end of the year and beyond. In fact, there are already leasing transactions that are scheduled to be concluded by the end of the year. "Without question, these trends will continue and are expected to have an impact by 2020," says Moore. “The general market sentiment remains optimistic and tenants see the economy as positive overall. Between the new deals and a record number of building sales forecast for this fall, pressure on leasing rates will continue to mount. "