As the economy gradually returns to post-COVID normality, office space is picking up in Orange County, though vacancy levels and rent growth have yet to return to 2019 levels.
Currently, vacancy rates stand at 11.9% as opposed to a historical 5 year average of 10%. This is a definite improvement over last year, but still not quite where things ought to be - we’re not quite out of the woods yet.
It is projected that office space rent growth in the county is going to remain in the red this coming year too, given that there is a big supply-demand mismatch. But increased economic activity and more businesses getting back to full capacity and away from work-from-home means that it will be harder to find the commercial space you’re looking for in the months to come.
Renting commercial property is a long-term commitment and it is VERY difficult to renegotiate or cancel your agreement once signed, without consequences for doing so. That means if you’re looking for commercial space, you’ll need to carefully consider a range of factors before committing. What are some of the things you should evaluate before renting commercial real estate in Orange County? Let’s take a look.
Location, location, location. This is a critical factor when it comes to your property decision. You should have a clear understanding as to what area is suitable for your business before you start looking for properties:
What should you consider while choosing the location? Well, it is not an easy decision, and like most things, involves several factors. You’ll need answers to these questions, among others:
- What is the nature of your business?
- Where are your clients located?
- Where are most of your employees living?
- What kind of amenities do you need access to?
These are all important aspects to consider before thinking about location. It may not be easy to find the office space that you need in the area that you have decided on. So it is a good idea to have a couple of backup choices too.
Finding the right space is not going to be as much of a struggle now as it has been in the past. The availability rates today stand at 14.7%, with over 3.3 million square feet of space available. Even high-demand areas like Newport Beach and Irvine have a lot of inventory available, and rent growth is negative. Other central areas like Santa Ana, Anaheim, Mission Viejo, and Garden Grove have relatively low rent and plenty of available spaces.
Location is intrinsically tied to both your budget and spacing needs. Office space square footage generally scales with price and in locations like Newport Beach, your cost per square foot will be higher. If you run a business with extensive space requirements (for a warehouse, for example), and where you aren’t often in a client-facing position, cheaper areas will work just fine. If you just need a small office presence - let’s say half your workforce is WFH and you just need a great place to meet clients - a smaller space in a more expensive location will make sense.
Rent rates are a key factor when you’re taking a call about which commercial property to rent. Rent is dependent on the location of the property, the size of the property, and other factors such as the amenities available. It will also depend on the tenure of the deal you are signing.
Orange County on the whole is generally priced lower in terms of rent as compared to other Southern California markets. The average asking rent is at $31/Square Feet per year, compared to the national average of $34.00 per square foot. This varies a lot within the county though, with areas like Irvine priced around $35/square feet, and Newport beach commanding $40 per square foot.
Our clients often approach us without a clear understanding of their budgets and this is one of the first things we look at. Given the high vacancy rates post COVID, it is often the case that rentals may be a bit lower. Having a good real estate agency on your side will help you get the best deal on properties in this climate.
Beyond just the per square foot rate, you should also understand the cost elements that are added on top. Landlords may often pass on costs such as facility costs and maintenance costs or even property insurance to the tenants. It is important to look at these factors before finalizing the deal.
The terms of the lease are another important thing to consider, as commercial leases are often longer than residential leases and the penalties for canceling the lease are often quite high. Having lease terms that are favorable to you is critical as it determines your ability to make use of the property adequately and not have another expense to contend with.
Lease terms specify the length of the lease, the monthly rental to be paid, and other conditions that need to be adhered to by both the landlord and the tenant. These terms protect the interests of the landlord as well as you, the tenant, and are thus important.
If you are planning to make changes to the property, the lease terms should allow for it. Otherwise, you may end up in trouble later. Who pays for the changes, what all can be changed, what all amenities and common facilities are available for you? All these are important questions to answer while negotiating the terms of the lease agreement. In today’s market environment, some landlords are willing to make provide generous TIAs (tenant improvement allowances), effectively subsidizing the cost of improvements you make to the property by taking the amount out of your rent.
It is also important to have clarity on the break clause, and what the advance notice that needs to be given before you can end a lease agreement. The terms should also specify what cost of premature lease termination. It is also necessary to have clear clauses for cure or remedy in case there is a breach of lease terms from either you or the landlord.
Having lease terms that will help you in using the property adequately is important. In case you do not have the necessary terms, it is easy for you to land in trouble and this could mean considerable added expenses.
Understanding the type of property is vital to making proper use of it. A thorough inspection is necessary to make sure that the property you are trying to rent fits the need you have. If you are trying to rent office space that can host a lot of employees, you should make sure that the property can comfortably accommodate all your employees (with or without modifications).
Some commercial spaces are ideal for retail establishments or restaurants and may not be suitable for an office space. Similarly, an office space that is designed for a traditional floorplan with private offices and separated areas may not be suitable if you are a startup looking for more of an open-plan arrangement.
Amenities and Value-adds
Lastly, make sure that the property you are renting has all the amenities you will need before you rent. Facilities such as elevators, washrooms, and parking spaces are quite critical to the smooth functioning of your office space. It is also important to have adequate natural light to aid productivity. Having space for setting up a pantry or a cafeteria could also be important.
It is important to also understand the access you have to common facilities in the building. These facilities may be accessible to all tenants in the building or they could also be sometimes reserved for certain offices. Understand this will help you plan your office space much better.
Finding the right office space to rent in Orange County can take a considerable amount of work and research. You need to explore enough properties to get a good idea of what’s out there available, and what facilities are available. Location and pricing are often the major factors that are most important, and you’ll want to pay particular attention to these. But it is important to also look at other factors that have been discussed above to make sure that you are getting the best out of your office space.
Because most commercial real estate leases are at least three years, it’s easy to get into trouble if you make the wrong choice. Doing proper due diligence before you finalize is the only way to guarantee a successful lease.
Aspect has helped many businesses find their dream commercial space in Orange County. Talk to us today. We’ll help you find the best property for your needs and negotiate the best possible deal.