Santa Ana Commercial Real Estate Faces 'Prolonged Headwinds'
The commercial real estate market in Santa Ana and Southern California continues to face significant challenges from high mortgage rates, with 10-year bond yields at two-decade highs. Local advisors warn that the combination of high financing costs, geopolitical shocks, and technological disruption is slowing deal flow and pressuring valuations, especially in the office and retail sectors.
- A "flight to quality" is defining the Orange County office market, with higher-end Class A properties capturing 60% of new leasing activity. Meanwhile, the overall office vacancy rate held steady at 18.3% in the fourth quarter of 2025. - To cope with flagging demand, some obsolete office buildings are being converted for other uses; a vacant 111,483-square-foot Class A building in Santa Ana was recently sold to a developer for conversion into 86 townhomes. - Underperforming retail centers are also being targeted for major redevelopment. The Segerstrom family has proposed "The Village," a project near South Coast Plaza that would redevelop a commercial center into nearly 1,600 homes along with new retail and office space. - In contrast to the office sector, Orange County's retail market has shown resilience, with a low vacancy rate of around 4.0% in the second quarter of 2025. Investment remains strong, evidenced by transactions like the $49.5 million sale of a Home Depot in Santa Ana. - Landlords of struggling office properties are actively offering concessions to attract and retain tenants, including periods of free rent and flexible lease terms. - The industrial real estate sector is also adjusting, with Orange County's industrial vacancy rate rising for 12 consecutive quarters to 5.0% by the end of 2025. While rents have softened, they remain 47.5% higher than pre-pandemic levels. - The challenges in commercial real estate are mirrored by shifts in the local labor market, as Orange County's unemployment rate rose to 4.5% in June 2025, driven in part by job losses in office-occupying sectors.
