Orange County Office Market Stabilization: Q1 2026 Insights

As we step into 2026, the office market in Orange County is showing signs of stabilization following years of volatility. The latest report from Kidder Mathews indicates a notable shift towards equilibrium, where leasing momentum and reduced inventory are reshaping supply dynamics. This shift is primarily marked by an 11.3% direct vacancy rate—reflecting a 3.8% year-over-year decline and positioning Orange County below the national average in terms of vacancy rates.

Leasing activity has remained a critical influencer on market trends, with approximately 1.6 million square feet leased in the first quarter of 2026. Although this figure represents a slight decrease compared to the previous year, it highlights a cautious approach by tenants. Many companies are downsizing their office footprints or contemplating ownership options, taking into account changing work dynamics and long-term space requirements. This trend is reflected in the continued exploration of owner-user alternatives by a subset of businesses, further defined by a shift towards higher-quality office spaces.

A positive net absorption rate of just under 69,000 square feet is another key indicator of the market stabilizing. This figure is concentrated within specific submarkets, particularly higher-quality buildings. For instance, Newport Beach has demonstrated a trend of positive absorption while maintaining relative low vacancy rates. In contrast, areas like Irvine/Tustin Legacy are experiencing mixed results, underscoring the importance of location and asset quality in today’s leasing decisions.

Moreover, the changing dynamics of available inventory have significant implications for the office market in Orange County. Over the years, tenant-occupied properties have decreased, partly due to redevelopment and adaptive reuse initiatives. As some older office spaces are being repurposed for mixed-use or medical endeavors, the overall inventory of available office space continues to decline. With only 324,000 square feet under development in the first quarter and a meager 43,000 square feet delivered, the restricted construction pipeline reflects both escalating costs and shifts in demand.

Investors and developers are now pivoting toward specialized and alternative uses of office space. This shift aligns with emerging demands, particularly in healthcare and mixed-use developments. Notable projects such as the 168,137-square-foot Weave at ocV!BE are underway, indicating a growing trend towards diversifying asset types within the office sector. As high-quality, well-located spaces outperform, investors are focusing on strategic transactions, with the largest sale of the quarter being the VK Creative Campus in Irvine, sold for over $232 million.

In terms of rental trends, the average asking rent has remained stable at approximately $2.86 per square foot on a full-service basis. A moderate growth is supported by limited new supply and competitive landlord environments. Yet, rising build-out costs place pressure on both tenants and property owners, often leading to concessions aimed at securing tenancy. The attention is increasingly directed towards high-quality office space in coveted submarkets like Newport Beach, while older or lesser-quality buildings grapple with elevated vacancy rates and sluggish leasing activity.

Finally, the broader economic backdrop adds context to these trends. Orange County’s diverse economy, bolstered by sectors such as healthcare, technology, and industrial businesses, continues to generate variable office demand. Recent expansions by government agencies and healthcare organizations offer a glimpse of resilience, providing a counterbalance to private-sector caution. Despite challenges in office-using employment due to labor market conditions and rising operational costs, the overall outlook for the remainder of 2026 remains cautious but hopeful.

With limited new construction and a continuing reduction in inventory, experts anticipate a gradual stabilization in the market. Future improvements will hinge on sustained leasing demand and a more consistent recovery in office employment. In essence, the Orange County office market is poised for gradual progress rather than rapid growth, setting the stage for a balanced and evolving landscape in the coming months.