As we closed out 2025, it became increasingly clear that all Southern California office buildings were no longer moving in the same direction. What once behaved as a single asset class, has fractured into distinct trajectories based on location, asset quality, tenant profile, and capital structure. The narrative is no longer about recovery versus distress, but about survivability versus obsolescence.

Across the region, well-located, high-quality assets continue to attract tenants and capital, while older, functionally obsolete buildings face prolonged vacancy and mounting pressure. This fragmentation is not cyclical. It reflects a structural reordering of how office space is used, financed, and valued. In many cases, two buildings within the same submarket can experience entirely different challenges based on their ability to meet modern user expectations and financial headwinds. Orange County has followed this same pattern, though with less volatility than some coastal urban markets. Demand has not disappeared; it has narrowed, concentrating in a smaller subset of buildings. 

Over the past several years, the office sector has undergone a form of controlled demolition driven by two parallel dynamics: capital management and inventory reduction.

On the capital side, banks have worked proactively with borrowers to extend maturities, modify loan terms, and allow more time for stabilization. This has prevented a disorderly wave of foreclosures. 

At the same time, a significant chunk of inventory has been removed from the market entirely. Approximately 2.90% of the office base, 3,028,420 square feet, has been eliminated via demolition or acquisition by owner-occupants in the past four years. This reduction in supply has helped stabilize market metrics and prevent what would have been a far more severe correction.

Looking ahead to 2026, these same forces may converge to create a narrow but meaningful window of opportunity. Modestly lower interest rates, continued lender cooperation, and modest asset appreciation could work in combination to create more favorable conditions. For disciplined operators, this may represent a chance to restructure balance sheets, reposition assets, or selectively exit ahead of the next phase of the cycle.

Buyers have largely come to terms with a higher interest rate regime and, importantly, many believe pricing has reached its floor. That combination has been elusive for much of this cycle and as those signals further align, sales activity should pick up.

Supply conditions further reinforce this outlook. New construction remains negligible, with less than 500,000 square feet currently in the pipeline across the broader market. With inventory growth under control, leasing fundamentals and financing conditions should gradually improve.

I’m not suggesting a return to prior peaks or that every asset will be saved. Many will not. The office market’s next chapter will be shaped less by headline leasing velocity and more by capital strategy, timing, and discipline.