Why OC Office Vacancy Just Hit a Turning Point – Podcast Recap with Mike Adams of Stream Realty

Orange County Office Market Posts Strongest Absorption Since COVID as Tier One Vacancy Falls to 9.8%

The Orange County office market just posted its two strongest quarters of absorption since the pandemic began. Q1 2025 saw 385,000 square feet of positive absorption, vacancy dropped year over year from 17.3% to 16.1%, and sublease availability has fallen to just 1.49%. But the headline numbers obscure a more complex reality: the market is bifurcating sharply between top-tier assets and everything else.

That was the central finding from 5×5 with CompStak episode featuring Mike Adams, Market Lead at Stream Realty Partners in Orange County. Adams tracks roughly 95 million square feet of institutional office across five submarkets and 1,569 buildings, and his data reveals a market where tier one buildings are operating at 9.8% vacancy while tier three product sits at 27%.

Check out the full episode on Spotify and YouTube.

Class A Rents Lag National Recovery by 40 Points

CompStak data shows Orange County Class A office rents averaging $3.10 per square foot monthly, up 4.3% year over year but still 10.8% below 2019 levels. That stands in stark contrast to the national Class A office market, which has climbed nearly 30% above pre-pandemic pricing.

Adams attributes part of this gap to Orange County’s unique supply dynamics. The market has averaged 535,000 square feet of office demolitions annually over the past five years, with 4.35 million square feet of additional demolitions planned. Much of this is two-to-three story suburban product sitting on land that pencils better for residential development.

“We sold a building in Lake Forest for $350 a foot to a developer when the building was probably worth $195 a foot as office,” Adams said. “That’s a 42.3% increase. The seller liked it because they didn’t have to put any more TI into it.”

Sublease Vacancy at 1.49% Signals a Turning Point

One of the most telling data points Adams shared: sublease vacancy in Orange County has fallen to just 1.49%. For a market that saw sublease inventory balloon during the pandemic, this signals that tenants have worked through the discount options and will increasingly need to sign direct deals at market rents.

“That’s great for the overall market because tenants will have to step up to direct deals,” Adams explained. “When tenants go into subleases, they’re taking space at a discount. If they’ve got to step up to direct rents, everything works more efficiently.”

Combined with the ongoing demolitions pushing tenants out of older Class B product, landlords of quality assets should see sustained upward pressure on rents. Adams noted that displaced tenants are often increasing their budgets to move into mid-rise buildings with structured parking, accepting both higher base rents and parking charges.

Airport Area Drives 57% of Leasing Activity

The airport area remains Orange County’s nucleus, accounting for 57% of total market leasing activity and posting 289,000 square feet of positive absorption last quarter. Adams sees this submarket as a leading indicator: as the airport area goes, so does the rest of Orange County.

Central county also showed strength with 128,000 square feet of positive absorption, driven by government, education, and healthcare back-office operations. CompStak data supports the healthcare trend, with three of the last five highest-rent deals in Orange County signed by health or life science tenants.

Active tenant sectors in Stream’s current pipeline include financial services and wealth advisors (16% of inquiries), healthcare (15%), government and education (10%), and law firms (8%). The average deal size in 2025 is 3,751 square feet, with 51% of inquiries coming from tenants seeking 1,000 to 3,000 square feet.

The SCALE Framework for Winning Office

Adams introduced a framework for evaluating which office properties will outperform: SCALE. The acronym stands for spec suites, conversion optionality, amenities, location, and experience (increasingly defined as hospitality-level service).

“Undifferentiated office is dead,” Adams said. “Owners need to change their mindset from ‘what’s the market rent’ to ‘why is the tenant going to lease at my building.’ In Irvine, if you’re looking for three to five thousand feet of Class A, you’ve got 41 options.”

For investors, Adams sees the next 24 months as a window. Those who bought office 12 to 24 months ago at distressed pricing will be “handsomely rewarded” as the asset class regains institutional credibility. He expects top-tier buildings to eventually trade north of $1,000 per square foot nationally as negative sentiment fades.

---

KEY TAKEAWAYS

• Tier one office vacancy in Orange County is 9.8%, while tier three sits at 27%. The flight to quality is not just a talking point. Top-50 buildings are outperforming dramatically, and the gap is widening.
• Sublease vacancy has fallen to 1.49%. Tenants have absorbed the discount inventory, and direct deals at market rents will drive leasing activity going forward.
• 4.35 million square feet of office demolitions are planned. Older suburban office on valuable land is being scraped for residential, tightening supply and pushing tenants into higher-quality product.
• The airport area accounts for 57% of Orange County leasing activity. This submarket is the bellwether for broader market health, and it just posted 289,000 square feet of positive absorption.
• Contrarian office investors may be rewarded. Adams argues that buyers who moved on office in the past 12 to 24 months will see strong exits as institutional capital returns to the asset class.

Watch the episode on YouTube for the full insights.