OFFICE MARKET TRENDS Orange County office leasing volume declined 7.2% quarterover-quarter in Q4. Despite this slowdown, 2024’s total leasing activity surpassed 8.3 million s.f., setting a new high since the pandemic and only 8.7% below the total recorded in 2019. Irvine saw an acceleration in leasing activity in 2024, but leases were dominated by renewals and corresponded with continuing downsizing activity, leading negative net absorption to grow YoY. Irvine’s leasing acceleration has largely benefitted offices in walkable settings, or creative office product that appeals to technology occupiers. Interest rate cuts have not yet created a meaningful improvement in liquidity for office product in Orange County, although Irvine is generating the largest share of investment activity. Despite a roughly 30% increase in sales volume nationally, investment volume in Orange County totaled just $843 million, a 15% decline YoY. Accelerated sales activity in the region will allow older properties to more quickly be redeveloped to industrial or medical uses, helping to offset the increase in vacancy. Responding to the state mandate of enlarging housing supply, The Irvine Company recently proposed replacing two MacArthur Court offices with 700 apartment units. Cities of Orange and Anaheim also announced new plans to convert three office buildings to residential. In the office conversion ORANGE COUNTY (IRVINE) • 2024 office leasing activity in Irvine reached a new high since the pandemic despite the slowdown in Q4, but activity was dominated by renewals, many of which were associated with a downsized footprint, which drove negative net absorption for the year. • Financial and technology firms were the primary drivers of leases on spaces larger than 10,000 s.f. during Q4. • The first interest rate cut since 2022 stimulated a 77% increase in office sales in Q4. However, 2024’s total volume was the lowest since 2010, reflecting the lingering impact of high interest rates. • Residential, rather than industrial, began to dominate office conversions in response to state’s housing mandates and demand shift in Orange County. Overall market statistics Forecast 2024 net absorption (s.f.) -352,770 Under construction (s.f.) 168,137 Total vacancy (%) 17.2% Sublease vacancy (s.f.) 1,928,832 Asking rent ($ p.s.f.) $35.52 Concessions Stable trend since the pandemic, Q4 2024 marked the first time that residential dominated redevelopments instead of industrial, signaling the demand shift in Orange County. OUTLOOK Looking ahead, the uncertain impact of potential tariffs and immigration policies under the new presidency, as well as the Federal Reserve’s unclear direction for 2025, may slow down the active trading momentum observed in Q4 2024. Despite these uncertainties, stable employment, steady leasing activity and limited new supply should position Orange County well to face upcoming challenges. With 35 million s.f. of expiring leases in the next three years and just over one million s.f. available in the pipeline or recent developments, Orange County will experience high renewal rates in the coming years. MUST'S SUBMARKETS Net absorption and overall vacancy rates Gross leasing activity Rental rates and going-in yields Class A cap rate (%) Cap rate Asking rent 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 9% 8% 7% 6% 5% 4% 3% 25% 20% 15% 10% 5% 0% $45 $40 $35 $30 $25 $20 2010 2014 2018 2012 2016 2020 2022 2024 Net absorption (m.s.f.) Total vacancy (%) Irvine Rest of Orange County 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 3.2M 3.0M 3.2M 3.5M 3.4M 2.8M 2.3M 2.5M 2.4M 1.7M 2.8M 2.0M 3.4M 3.2M 3.3M 2.2M 2.5M 1.9M 2.3M 2.8M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 ANNUAL REPORT 2024 | 47
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