A look at Orange County’s premiere office towers in the market’s most desirable locations
According to JLL’s newly-released 2015 Digital Skyline, there is no space like Trophy space. Across the U.S. and Canada, the most premier assets in terms of quality and location are commanding the highest rents relative to non-Trophy space. In fact, the 2015 Skyline report finds that the average U.S. office tenant could expect to pay nearly a 77.0 percent premium to lease space in a Trophy building versus a non-Trophy property, and this gap is widening. Just 10 years ago the Trophy space premium was a mere 20.8 percent; however, the flight to quality trend that dominated leasing activity in the early years of the post-Recession recovery has been met with improving economic conditions, which have led to significant supply constraints in the country’s highest-quality assets. As a result, the deepening chasm in vacancy rates between Trophy and non-Trophy assets has led to the widened rent gap.
Southwest Skylines are reaching new heights
In the Southwest, improving market fundamentals have finally caught up with national averages and, in some cases, are exceeding them. Southern California and Phoenix have taken some time to shake off the dust that came from the collapse of the housing market, but they are now enjoying a more robust rebound as technology, healthcare, and new media firms have become drivers for growth in the region. The ability for firms to recruit top talent in an increasingly competitive environment is ultimately translating into increased demand for the quality office space that is offered by the region’s Skyline assets.
In Orange County, the demand for Trophy space continues to heat up after a prolonged recovery period. Orange County’s overall office market experienced an extensive climb back to pre-Recession occupancy levels which was fueled by an over-exposure to the mortgage lending industry as well as nearly 3.0 million square feet of new Class A product delivering to the market right when the market fell apart in 2007.
“Today, OC’s Skyline rents are being driven up by tenants who are looking for quality space that is in short supply,” according to JLL’s Orange County Research Analyst, Dillon Knight. “Demand for such space is so high that it has spurred new development in Newport Center and Irvine Spectrum, two of Orange County’s hottest submarkets in terms of tenant demand and rent growth.” With continued expansionary activity, rents are expected to continue their climb throughout 2015 as well-positioned landlords continue to gain leverage in the marketplace.
As the Southwest and greater U.S. continue to progress through this upward phase of the office market cycle, it will be critical for the Skyline’s stakeholders (tenants, investors, landlords, etc.) to stay informed of current and future opportunities. Competition is growing with each passing quarter with almost no indication of slowing down in the coming year.
About JLL’s 2015 Skyline Review
For the first time, investors and tenants alike can now access JLL’s 2015 Skyline Review via an interactive digital platform. The fully interactive website features JLL’s proprietary market insights related to supply, demand, rents, leverage and investment within 47 markets across the U.S. and Canada, including the major markets of the Southwest region. With the ability to compare and contrast the most premiere assets across multiple markets, stakeholders have the ability to stay informed on potential opportunities in an increasingly competitive environment.
Dig into building analyses with JLL’s interactive Skyline site.