As companies continue to absorb and use more space, the vacancy and availability rates will continue to decline. Absorbing the most space will be companies mainly in research-oriented businesses such as IT, defense, and medical as well as alternative energy. Major companies are also currently growing their footprints in the Orange County market. CoreLogic will move into a new 170,000 sqft space in the Spectrum in August and A to Z Development, which currently occupies 23,000sqft, will expand to 82,000, in the same building. Both of these moves will impact the absorption in the third quarter.

A downward trend in the amount of vacant office space that is being added to the market each quarter, as well as an expectation that investors activity will increase as they dispose of distressed assets will also contribute to the continuing recovery. Thanks to all these factors, the recovery will continue as long as job growth continues and consumer confidence stabilizes.

Looking forward towards that recovery, there are a few things we can predict about the Orange County office market. The market has seen several consecutive quarters of positive net absorption, ignoring the first quarter of 2012, and 1.7 million square feet have been leased in the past year. Coupled with steady job growth, the demand for office space is building.

Although asking rates for class B and lower end office space continue to fall, the average asking rate of class A space has seen a dramatic jump so far in 2012. This trend could possibly show the end of the movement to quality, taking advantage of the lower rates. As demand keeps going up, the value available from discounted high quality office spaces will begin to disappear, forcing some tenants to look elsewhere for cheaper alternatives. As more tenants do this, the current jump in rates for class A will work its way down.

Many sectors continue to show improved employment numbers as well. Leisure and hospitality along with business services are both up over 4% leading total non-farm employment to go up nearly 2% in the last year. The education and health services sectors, along with modest gains in manufacturing are expected to lead the county’s job growth. The financial sector should also expect to see growth with Greenlight Financial and Cash Call announcing hiring plans for the summer.

All these signs point to an economy that continues to improve and add jobs. It is safe to assume that the tenant’s market will last at least for the rest of 2012 and into 2013, but as demand continues to build, we could shift back to a landlord’s market by early 2014.

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