Orange County Office Market Shows Steady Improvement in 2025

The Orange County office market is displaying positive signs of recovery, marked by rising absorption rates, a decline in sublease space, and increased sales activity. As of the fourth quarter of 2025, the market has gained traction, reflecting a gradual return to pre-pandemic conditions. This article highlights the key performance metrics, trends, and investment opportunities within the Orange County office sector.

Market Performance Overview

In the last quarter of 2025, the Orange County office space saw an increase of 1,042,440 square feet occupied, which brought the overall vacancy rate down to 11.7%. This marks a 70-basis-point decline compared to the previous year, with total occupied inventory now reaching nearly 138 million square feet. The steady shift from remote work to in-office arrangements has played a crucial role in contributing to positive net absorption of around 837,547 square feet thus far in the year. Notably, sublease space saw a reduction of 3.2% over the quarter and a substantial 20.4% year-over-year, highlighting a sharp improvement in market conditions.

Sublease and Direct Space Dynamics

The declining availability of sublease space is a significant indicator of the market’s recovery trajectory. Currently, roughly 2.7 million square feet of sublease space is available, with direct availability also decreasing by 3.4% quarter-over-quarter. This reduction translates to about 19.7 million square feet of direct space, indicating that the overall landscape is shifting towards more stable occupancy levels. Despite these improvements, the market is still approximately 3.5% below its pre-pandemic benchmark, indicating ongoing adjustments as businesses recalibrate their space needs.

Leasing and Rent Trends

Average asking rents for office spaces held steady at $2.77 per square foot, reflecting a slight decline of 1.8% from the previous year. The leasing volume approached 2.0 million square feet in Q4, a decrease of 15.3% from the previous quarter, bringing the year-to-date total to around 8.2 million square feet. Much of this demand is driven by lease renewals and selective expansions, often facilitated by landlords offering concessions and flexible leasing terms. This strategic maneuvering has helped stabilize rent, ensuring that landlords remain competitive in an evolving market landscape.

Emerging Investment Trends

As Orange County heads into 2026, both tenants and investors are recalibrating their strategies. Direct leasing activity has seen a decline of 14.7% year-to-date when compared to the previous year, but a total of 7.7 million square feet has still been leased, generating positive absorption figures. Investors are starting to take note of these trends, focusing on long-term value as pricing and capital structures adjust. The average building size traded indicates a growing inclination towards smaller assets, which aligns with the evolving needs of businesses and higher financing costs.

Recent Transactions Highlighting Dynamics

Recent transactions in the Orange County office market encapsulate these evolving dynamics. Notable sales include Alcion Ventures selling a majority interest in a ten-building portfolio at FLIGHT at Tustin Legacy to Glendon Capital for approximately $199 million, indicating a growing preference for strategic recapitalizations. Furthermore, the HdL Companies engaged in a sale-leaseback transaction of their Brea Place headquarters for $19.45 million, underscoring a trend where occupiers seek liquidity while maintaining long-term occupancy rights.

Looking Ahead: Market Stability and Strategic Positioning

As we enter 2026, the Orange County office sector continues to transition. While leasing activity has moderated, it still brings forth positive absorption rates. Investment activities are increasingly defined by smaller transactions and strategic recapitalizations, reflecting a market oriented towards stability and operational performance. Both tenants and investors seem poised to remain selective in their approaches, ensuring that any decisions made align with long-term goals and the recovering fundamentals of the office space market.

Conclusion

In summary, the Orange County office market shows clear signs of improvement as positive absorption, declining vacancy rates, and rising sales volumes contribute to a more stable environment. As trends evolve, both businesses and investors are strategizing for the future, highlighting a reset in values and operational requirements. The overall outlook remains cautiously optimistic as the market stabilizes, indicating a period of growth and recovery ahead.