When developers started work on nearly 2 million square feet of high-rise office space in Irvine about four years ago, the thinking was they would need to charge top dollar rents to cover big construction costs.
Now, office space in some of Irvine’s newest buildings can be had for about half as much as real estate watchers had expected and landlords had hoped for.
Perhaps most notably, at Irvine Company’s 20 and 40 Pacifica Irvine Spectrum towers, asking monthly rates as low as $2.05 per square foot are being advertised on the Newport Beach-based company’s Web site.
Some upgraded space at the Pacifica towers is being offered at a higher $2.75 per square foot rate. But a majority of the available space runs in the $2.15 to $2.40 per square foot range.
That’s in line with the rest of the Irvine Spectrum, where the average office rent—excluding flex-tech space—is about $2.35 per square foot, according to data from Voit Real Estate Services.
When the two towers were being built along the San Diego (I-405) Freeway, Irvine Co. advertised monthly lease rates of more than $4 per square foot for much of the buildings.
Most of the Irvine buildings put up in recent years were expected to see rents of $3.50 to $4 a square foot, making them among the most expensive in the county.
Now the newest office space can be had for rates roughly on par with other buildings in town.
The new owners of Irvine’s 2050 Main Street tower, a partnership including Newport Beach-based Greenlaw Partners, are asking for monthly rents of about $2.67 per square foot, according to data from real estate market tracker CoStar Group Inc.
That’s nearly a dollar per square foot below what the building’s prior owners, developer Opus West Corp. of Phoenix, had been asking about a year ago for space at the 314,000-square-foot building before filing for bankruptcy.
Houston-based Hines Interests LP’s nearby 2211 Michelson tower is nearly full. But tenants interested in subleasing space at the 12-story building can do so for a discounted $2.25 per square foot or so, according to CoStar.
Average office rents in OC were about $2.10 per square foot at the end of the first quarter, down 7 cents from the prior quarter and off by 28 cents, or nearly 12%, from a year earlier, according to brokerage UGL Equis.
Around John Wayne Airport, the best office space—totaling about 24 million square feet—had an average monthly asking rent of about $2.38 per square foot.
Across the county, asking office rents are off nearly 25% from their 2007 high of $2.79 per square foot, according to UGL Equis.
Even with signs of economic improvement, the brokerage predicts rents to fall through 2010.
“When the current recession began, rising vacancy preceded declining rents by at least six months,” Michael Gold, a UGL Equis senior research analyst, said. “Similarly, as the economy improves and space is absorbed, rental rate growth will again lag a tightening space.”
The rates on most signed leases are still much lower than landlords’ asking rents, said Royce Sharf, executive vice president for the Irvine office of brokerage Studley Inc.
In the case of Irvine Co., its advertised rates at the Pacifica buildings might be a reflection that OC’s dominant landlord is serious about making deals at reasonable prices, he said.
“It wouldn’t surprise me if Irvine Co., to their credit, decided to narrow the gap between the bid and ask prices,” Sharf said. “They don’t make any decisions without thinking hard about it.”
Part of the declining rents at the newer towers is due to changing ownership. Two high-rises have changed owners in the past year, while Hines’ 2211 Michelson is up for sale with initial bids due this month.
2211 Michelson would join Maguire Property Inc.’s 3161 Michelson and 2050 Main Street as newly built towers that have traded hands during the downturn.
Last Standing
If the sale of the Hines building goes through, only three of the six office towers built during the boom—those owned by the Irvine Co.—will remain in the hands of their developers.
The two new owners bought their buildings at sizable discounts, allowing them to offer rents at discounted rates, while the Irvine Co. has the financial ability to fill its buildings during the down market at low rates, in addition to offering attractive brokerage compensation packages that have reportedly led to a number of large leases of late.
