The new year is just around the corner, and if you’re in the recovering office market, pay attention: some shake-ups might be coming.
At Economos DeWolf, our real estate team is deeply integrated into Orange County’s commercial landscape. We’ve sold more than 400 office buildings, and we stay on top of the latest trends and concerns for property investors and owners.
It’s no secret that the U.S. office market has experienced transformative shifts in recent years, largely due to remote and hybrid work models.
By 2022, Statista reported that only 38% of the office space in Los Angeles that was occupied before the pandemic was still being used. Some cities, such as San Francisco, have even estimated it could take nearly 20 years for their office markets to recover to their pre-pandemic splendor.
However, things are changing 一 and Orange County investors should get ready for 2025.
As we look to the future, this blog will explore the trends shaping the office market in Orange County and how property owners and buyers can position themselves for success.
Shifts in the Local Office Market: Current Trends
1) Remote Work and Hybrid Models
The rise of remote and hybrid work has significantly reduced the demand for traditional office spaces, but that by no means indicates offices are obsolete.
In fact, recent 2024 data reveals that approximately 21% of the California workforce is embracing remote or hybrid work models. Nationally, 80% of current office occupiers have adopted and will sustain hybrid work policies (CBRE).
As more companies move in this direction, it’s clear that office space is still valuable 一 but it needs to be optimized.
First-hand, we’re seeing commercial investors in Orange County opt for smaller offices that are flexible and versatile. They’re looking for less square footage per employee but strong opportunities to facilitate co-working, hybrid setups, and modern work environments.
2) Vacancy Rates in Orange County
Back in the first years after COVID-19, many people were talking about the vacancy rates in Orange County office buildings. They certainly surged, but now, they just might be stabilizing.
According to CBRE’s Q3 2024 U.S. Office Figures, the prime office vacancy rate decreased by 20 basis points quarter-over-quarter to 15.5% (from 19%).
However, there are still plenty of office vacancies in our neck of the woods. The Orange County Register shared that 20% of Southern California offices are still empty. That’s more than 81 million vacant offices, but Orange County has performed much better than its SoCal peers.
Despite its better performance, Orange County continues to eliminate office space from its total. We’ve been compiling a report depicting a decline of 10,000,000 square feet of existing and potential office space in Orange County (call for this report).
3) Evolving Tenant Preferences
As businesses adapt to new work styles, we’re seeing California tenants demand lots of things: more flexible office layouts, coworking spaces, and environments conducive to collaboration.
Perhaps more notably, tenants are also talking about sustainability. Whether they’re looking for residential or commercial spaces, they’re accounting for their carbon footprints and increasingly demanding more sustainable buildings 一 even if they have to pay a premium for them. One of principals of the first LEEP AP broker in Orange County and can speak to the enhanced value of healthier buildings.
Challenges for Office Space Owners and Developers
We won’t lie: it’s still a tricky time to own office buildings. The trends we just listed above are evolving quickly, but there are many current challenges that will likely carry over into 2025. Let’s discuss a few of them.
Economic Pressures
Rising interest rates are making it more difficult for developers to secure financing for new office projects. As of December 2024, U.S. land development loan rates fall between 5 to 15% with construction loan rates reaching as high as 12% (per Finance Lobby).
Beyond development, existing commercial property owners are still facing lower occupancy levels, fortunately Orange County’s occupancy level is highest in the region.
Changing Workplace Expectations
Old office buildings don’t really cut it anymore. In the wake of COVID-19’s seismic office shift, employees are increasingly seeking workplaces that promote wellness and productivity.
Features like natural light, outdoor spaces, and access to wellness programs are pretty much non-negotiable. Additionally, businesses are investing more in advanced technological infrastructure to support hybrid work models.
This means if you’re building or buying office spaces, they need to be equipped with state-of-the-art systems for remote and in-office work integration. This can increase property and development prices or require costly renovations.
Opportunities for Evolution: The Future of Office Spaces
It’s not all bad news going into the new year! At Economos DeWolf, we focus on the future of our clients’ investments, including opportunities to evolve and generate income.
Looking forward, here are some of the leading ways we expect commercial property investors to make more money in 2025:
Mixed-Use Developments
A growing trend in Orange County is the conversion of traditional office spaces into mixed-use developments, combining office, retail, and residential spaces. This approach not only meets the changing demand for office space but also revitalizes neighborhoods and attracts diverse tenant bases.
For example, Related California is on track to develop a $3 billion, 41-acre mixed-use community in Santa Ana. The company plans to redevelop a 50-year-old retail center to include 3,750 apartments, 200 senior housing units, 250 hotel keys, and up to 350,000 square feet of retail and commercial space.
Office Space Reimagined
As we’ve discussed, the future of office spaces will likely be less about square footage and more about innovation.
Office buildings are increasingly becoming community-focused, offering shared amenities, public engagement spaces, and areas designed for brainstorming and teamwork. If property owners can capitalize on this shift, there’s the potential to draw in tenants looking for industry-leading, revolutionary workspaces.
Adaptive Reuse
Older office buildings may need more than just TLC, and may be more valuable as a reuse site.
Adaptive reuse provides a sustainable solution to the increasing demand for residential spaces while maintaining the economic viability of aging office buildings. From Los Angeles to New York, CoStar reports that many underused office buildings are becoming apartments. In Orange County, old office buildings are being sold as land value, which often exceeds their previous value as an office building.
This is set to become an especially prevalent trend in California, the state with the biggest homeless population. California’s 2022-23 and 2023-24 budget allocated $400 million in incentives for developers to convert commercial and office buildings into affordable housing, as part of a broader $2 billion effort to address the state’s housing crisis.
What This Means for OC Investors and Property Owners
If you ask the team at Economos DeWolf, Orange County is uniquely positioned to adapt to 2025’s trends. With our area’s diverse industries and highly skilled workforce, property owners and investors can benefit from modernizing their office spaces to meet the latest needs and expectations.
The Road Ahead: Long-Term Outlook
We don’t have a crystal ball, but we do have 50+ collective years of Southern California commercial real estate experience. As hybrid work models continue to stabilize, we anticipate a gradual recovery in demand for office space, particularly for those properties that offer flexibility and innovative designs.
Embrace Office Investment Opportunities in 2025
While the Orange County office market is undergoing significant changes, it presents ample opportunities for those who are prepared and willing to adapt. As the leading office building sales firm in the region, we offer the expertise and personalized service needed to navigate these changes.
Whether you’re looking to invest in modernized office properties or explore mixed-use developments, our team is here to help you succeed in the evolving market.
Contact Economos DeWolf today to explore how we can support your commercial real estate goals.
