Local commercial property managers grew their Orange County portfolios, surpassing 200 million square feet for the second consecutive year.
OC’s 29 largest property managers increased their local office, industrial and retail space by 5% to 215 million square feet, according to this week’s Business Journal list.
That marks seven consecutive years of gains.
This growth is also echoed outside of the county. OC offices managed 3,032 properties totaling 374 million square feet inside and outside of the region, up 15.5% and 4%, respectively.
There were about 5,800 OC employees in the past year, down 3%.
CBRE Group Inc. was one of only five firms to report a drop in portfolio size. It still takes the top spot with its 50.1-million-square-foot portfolio; a figure that’s down 5.5% from the year prior.
The Los Angeles-based firm’s Newport Beach office manages 254 properties, down 5.2%.
Newport Beach-based Irvine Co. remained at No. 2 with a local portfolio of 34.7 million square feet, up nearly 2% from the same period last year.
Thank an ongoing development push, along with a few local acquisitions, for the increase to the totals for OC’s dominant real estate firm.
Irvine Co. built and bought several buildings in the Spectrum area of Irvine last year, with more in store for 2019; the first phase of its multibuilding office development Spectrum Terrace will be opening later this year. The project, which broke ground last year just off the San Diego (405) Freeway, will hold close to 1 million square feet.
Along with ground-up development, the privately held firm spent much of last year revamping its 36-building business park next to the University of California-Irvine: UCI Research Park. The opportunity came after Broadcom Inc. vacated about 900,000 square feet at the park more than a year ago when it moved its Irvine operations to the newly built, CBRE-managed FivePoint Gateway office campus on the other side of town.
Irvine Co. said upwards of $100 million has been invested to redesign and upgrade the 185-acre campus since then, turning the office park into a multitenant campus with a variety of tenant-friendly amenities, like a food hall led by celebrity Chef Brian Malarkey (see executive dining column, page 12).
Managing Expectations
Food halls and celebrity chefs are the new norm, brokers say.
“The basics that tenants expect have gone up,” said Eric Paulsen, managing principal for the Irvine office of Cushman & Wakefield whose property management business ranked No. 5 on the list.
“Properties have to have some form of outdoor gathering area, eating opportunities, modern conference and fitness centers, and tenants are willing to pay for it. It really is more of an interesting challenge for property owners.”
Paulsen manages the company’s OC and Inland Empire offices, where employment rose 8% to 112 people last year.
Lower employment rates, declines in new construction and uncertainty about the market cycle are headwinds, Paulsen said.
“We are long in the tooth in the economic growth cycle,” he said. “We also may be talking ourselves into a slowdown.”
That hasn’t tripped up his firm, however. Its portfolio of managed properties jumped 49% last year, pushing it up to the top five with nearly 10 million square feet. This was the second largest increase behind Sares Regis Group. The Irvine firm’s portfolio surged 82% to 3.7 million square feet, adding three properties to its total management.
Top Performers
Rounding out the top five are:
• No. 3 Houston-based Transwestern, up 25% to 15.9 million square feet.
• JLL, up two spots to No. 4 with a 39% increase out of the Chicago firm’s Irvine office, which manages 10.6 million square feet.
Madison Marquette entered the OC market last year through its acquisition of previously listed PMRG. The company ranks No. 12 with a 5.5-million-square-foot portfolio.
The PMRG acquisition, along with its more recent purchase of Boston-based The Roseview Group LLC, opens up more opportunities for the company’s investment platform, according to regional President Jim Proehl.
“Madison’s expertise is retail, so the merger really expanded our expertise and gives us opportunities on mixed-use projects,” said Proehl, a longtime property management executive who works out of the firm’s Irvine office.
He added that the firm’s institutional partners are more concerned with the OC region when compared with Los Angeles or San Francisco due to its lack of “large-growth tenants.”
“A lot of institutional clients took 2018 to position themselves for a potential downturn in either 2019 or 2020 and maybe divest their core-plus assets,” Proehl said. “Now we are seeing a lot more hitting the market for sale,” partly due to a slowdown in interest rate hikes.
