REAL ESTATE NEWS

Absorption in the Orange County office sector has ended 2025 on a positive note. The fourth quarter marked the first time last year that demand was in the green (+200k square feet), causing vacancy to decrease from 17.2% to 17% quarter-over-quarter, according to a report posted by JLL.

Jason Lantgen, JLL managing director, told GlobeSt.com, ?Despite the Orange County, Calif., office market having negative absorption for 2025, Q4?s positive absorption provides momentum into 2026, as rents increased year-over-year," Lantgen said.

?We?ve continued to see a divergence with office product as newer supply has seen demand and pricing increase while lower quality product has waned."

The JLL Q4 2025 data backs this point, as Class A properties saw positive absorption throughout the year, while Class B product saw negative absorption.

Overall, Class A buildings commanded a 7.4% rent premium over Class B's, further highlighting the ongoing flight-to-quality among larger tenants, according to the report.

JLL noted optimism in a recovery is highlighted by multiple key drivers: limited new supply as the OC Vibe is the only development in the pipeline and office conversions, with JLL tracking over nine million square feet of office product set for transformation, which would cut vacancy in half over time.

?As the lower-quality product is formally removed from supply, average rental rates will naturally increase, even without factoring in the reduction in supply and competition,? he said.

Leasing Fundamentals Driving Investment

Tim Donald, a director on JLL?s Capital Markets team, told GlobeSt.com that leasing fundamentals are the primary driver of the Orange County investment landscape right now because landlords are seeing rent growth and occupancy gains.

?Tenant demand is pushing into the Tier 2 and 3 inventory via spillover from fully leased Tier 1 assets, combined with upward pressure from tenants displaced by a nation-leading pace of office to residential conversion or redevelopment,? he explained.

JLL has categorized each asset in the market into one of four tiers to better understand which buildings are best positioned to capture future absorption and rental growth, ultimately driving investment activity in transactions such as Centerstone Plaza and FLIGHT at Tustin Legacy, which closed in Q4, Donald added.

Office conversions continued, mainly affecting Class B and C buildings.

Underutilized office space for the project at 1-5 Polaris in Aliso Viejo was recently announced to be converted into multifamily residential use. This joins other slated conversions that could shrink office inventory by more than 5%, narrowing tenants' options.

Return-to-office mandates are also supporting this growth, with Pacific Life as a prominent example at its HQ in Fashion Island.

Irvine Sees Big Deals

A major move-in during the fourth quarter included Hyundai signing for 133,745 square feet in Irvine, which contributed significantly to market-wide positive net absorption.

Another big lease occurred in Irvine, with TGS Management, a financial services company, renewing for 114,875 square feet at 17500 Laguna Canyon.

Additionally, the County of Orange expanded in Q4 at Saint Andrew Place in Santa Ana, growing from approximately 100,000 square feet to occupy the entire 170,051-square-foot three-story building to accommodate various county agencies.

Q4 leasing activity was spread out across industries, reflecting Orange County's diversified economy.

Source: GlobeSt/ALM