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1/21/2020 Volt's Q4 2019 OC Office Market Report & 2020 Forecast — Just Released! • Orange County Office Space I Commercial Real Estate I Te due to its concentration of new deliveries still in the initial lease -up phase. Lease Rates Rent growth in the OC office market leveled off in 2019. The average asking lease rate in Orange County rose by just 0,37% over the past year compared with 1.7% nationwide. The average asking FSG monthly asking lease rate lost $0.09 In the fourth quarter, ending the period at $2.74. The average quoted rental rate for Class A space was $3.10 per square foot, compared with the Class B asking rate of $2.47 per square foot. Transaction Activity Slow growth in the regions labor force has resulted in hiring challenges for many firms, and that may be impacting transaction velocity. Orange County's labor market remains historically tight, with the unemployment rate holding at 2.5%. The total square feet leased and sold in the fourth quarter was approximately 3AM SF, a significant slowdown from the 5.OM SF of transactions in the fourth quarter of 2018. Downsizing into more open workspace to increase headcount and appeal to younger workers is also a factor. Employment The unemployment rate in the OC office market was 2.5% in November 2019, unchanged from a revised 2.5% in October, and below the year-ago estimate of 2.7%. This compares with an unadjusted unemployment rate of 3.7% for California and 3.3% for the nation during the same period. Localjob growth was evident across all subsectors but financial services (up 1,200 jobs) and Government (up 2,200 jobs) led the way as the year ended. Construction Total space under construction in the OC office market ended the year at 795,177 square feet. In Costa Mesa, construction is underway at The Press located at 1375 Sunflower Drive. This former L.A. Times printing facility is being converted into more than 300,000 square feet of creative office space to accommodate the shift in demand from businesses looking to recruit and retain a younger workforce. The Source, located in the Irvine Spectrum, offers a two -building concept with common atrium connectivity and more than 70,000 total square feet of rentable space. Irvine Company's build -to -suit for Alteryx Inc. at Spectrum Terrace 2 is also in the works. The company will occupy the bulk of the project's 340,000 square foot second phase. The first phase is fully leased. Absorption Co -working tenants like WeWork have leased millions of square over the past few years and the current slowdown in that sector is partly responsible for the recent decline in new transaction velocity. Orange County office occupancy grew by 167,588 square feet in the final quarter, bringing the year-to-date gain in occupied space up to 707,160 square feet. The Airport Area submarket accounted for 260,089 square feet of that total. By product type, Class A office led the way with a net gain of 314,790 square feet in just the fourth quarter. Notable transactions included: Avanir Pharmaceuticals (103,879 square feet in Aliso Viejo), County of Orange Assessor (69,151 square feet in Orange), and WeWork (71,076 square feet in Irvine). FORECAST Lease Rates Rent growth may pick up again as the absorption of the remaining first generation space gets leased up. With fewer attractive alternatives in the market, rent growth should return to an annualized rate of 2-3% over the course of the year. Vacancy Rates We anticipate that the overall vacancy rate will remain in the 11-12% range over the next three quarters, but the Class A sector will run somewhat higher due to its higher concentration of first generation space. Overall Signs of a global economic slowdown, concerns over US -China trade relations and a decline in the US GDP growth rate motivated the Fed to cut its benchmark Federal Funds Rate 3 times in 2019. That effort to stimulate consumer spending and business investment seems to be working. Equity markets responded by rising to new highs and the spread between short- and long-term US Treasuries widened again after a dangerous inversion earlier in the year. The latest estimates for domestic GDP growth for 2020 are running in the low 2% range, which should be enough to keep the current economic recovery on track. For more information on the OC office apace market and how to capitalize on real estate opportunities to grow your business, contact Stefan Rogers 949,263.5362 / smgers®voitco.com. Click HERE to download Volts Q4 2019 OC Office Space Market Report. (hhttl;.V/voitworks com/oc4g19off ) #Forecast(https://voitworks.com/tag/forecast/), #OC oittps://voltworks.com/tag/oc/), #office space (https://voitworks.com/tag/office-spaceA, #orange county (https://voitworks.com/tag/orange-county/), #volt quarterly market reports (https://voltworks.com/tag/voit-quarterly-market-reports/), #Voit Real Estate Services (https://voitwort(s.com/tag/volt-real-estate-services/) https://voitworks.com/2020/01/commercial-real-estate-news/voits-q4-2019-oc-office-market-report-2020-forecast-just-released/ 2/4