The office market in Orange County, California took a major hit in 2022, recording its largest-ever annual net occupancy loss according to a new report from VOIT Real Estate Services.

Last year saw businesses give back over 1 million square feet of office space in Orange County, breaking the previous annual loss record of 929,000 square feet set during 2020 at the height of the COVID-19 pandemic.

What’s behind this huge negative absorption rate? The rise of remote and hybrid work models has led many companies to cut back on their physical office footprints. Orange County is home to a lot of technology and professional services firms which have been early adopters of flexible and distributed workforces.

Some submarkets were hit harder than others. Irvine and Newport Beach saw occupiers return over 300,000 and 200,000 square feet respectively. Irvine now has a vacancy rate of nearly 15% compared to just 5% pre-pandemic.

The outlook for 2023 remains challenging. Voit forecasts negative net absorption of 600,000 square feet across Orange County this year. Sublease space also continues to pile up, reaching nearly 3 million square feet currently listed. That glut of sublease offerings gives tenants negotiating leverage on lease rates.

While the office market is undoubtedly going through major structural changes, Orange County does have some positive underlying fundamentals. The area boasts a highly educated workforce and desirable lifestyle that should help stabilize demand over the long-term. The question will be what the “new normal” looks like for office as we settle into a hybrid future of work.