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A Few Excerpts from a Local Commercial Real Estate Report: "Good news is construction activity has all but stopped"

by Calculated Risk on 7/13/2021 04:54:00 PM

Voit Real Estate Services released their Q2 reports on Commercial Real Estate (CRE) in SoCal. Here are a few excerpts from the Orange County Office report:

“The Orange County office market struggled again in 2Q. It had already been slowing before the pandemic hit, and by virtue of the higher employee density and multi-tenant configuration of office product, the office sector was hit harder by COVID than other sectors. Vacancy and availability both moved higher, and net absorption remained in negative territory. Average asking lease rates were relatively flat, but they alone do not tell the full story, as landlord concessions have risen sharply and are not reflected in market metrics. Office tenants are still trying to sort out how to fold their workforces back into the office, and that has delayed decision-making regarding relocations and renewals.

The vacancy rate in Orange County rose to 13.76%, up
61 basis points in 2Q. That came on top of a 116-basis-point spike in 1Q. The increase was
expected given how many moves have been put on hold to re-evaluate space utilization.
Class A product is under the most stress. Vacancy in those buildings rose to 18.28% in 2Q,
compared with 10.96% for Class B and just 8.75% for Class C.

Fewer relocations and an increase in short-term renewals significantly
impacted net absorption in 1Q, and the same held true in 2Q. Net absorption was in negative
territory again in 2Q, posting a net loss of 512,502 SF, after recording a loss of more than 1.2 MSF in the opening quarter. Consistent negative absorption points to a future increase in

The good news is that construction activity has all but stopped for the
moment, which gives the market a chance to reabsorb existing unoccupied space and clear
off some of the lower-priced sublease space. Just 439,206 SF of office space was in the
construction queue as 2Q ended, all of it in one project in Costa Mesa, The Press. Another
1.7 MSF of space is in the planning stage but is not expected to get underway until market
conditions improve.”
emphasis added

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