More dreams of development should translate into groundbreakings next year, as Orange County’s commercial real estate industry continues to spring back to life.
The past four years has seen—by Orange County standards—minimal new development. But next year has the potential for a definite uptick in activity, thanks to a few big projects wrapping up work and other sizable projects moving ahead.
Hyundai Motor America Inc. broke ground on a 470,000-square-foot office development in Fountain Valley earlier this year and is expected to finish the estimated $150 million project by the end of 2013.
The building, being built at the site of Hyundai’s former headquarters along the San Diego (405) Freeway, will be the largest office built in OC in over five years. The car company has been operating out of Costa Mesa during the construction.
Pimco HQ
Also moving toward completion next year is the 380,000-square-foot high-rise office tower in Newport Center that is being built for investment manager Pacific Investment Management Co. That building, situated at 650 Newport Center Drive, is being built by Newport Beach-based Irvine Company and is expected to finish up work late next year, though Pimco isn’t scheduled to move into the space until early 2014.
The Hyundai and Pimco offices, along with a few smaller industrial projects under way, look likely to push the total amount of completed office and industrial development past the 1-million-square-foot mark next year. That hasn’t happened since 2008.
At least another 2 million square feet of office and industrial projects could break ground next year if all goes according to plan, according to market watchers.
“It’s definitely improving,” said Kurt Strasmann, senior managing director for the OC operations for brokerage CBRE Group Inc.
In addition to new ground-up projects, the area also is seeing a big uptick in redevelopment of existing sites, such as the 140,000-square-foot Red Hill Avenue building that’s being turned into a new headquarters for dental-practice manager Pacific Dental Services Inc.
“Development is not easy to come by these days, but I really see things [picking up next year],” Strasmann said.
The area, despite the uptick, still has a ways to go to reach anywhere near the heights seen before developers here felt the effects of the last recession.
Almost 7.8 million square feet of projects around the county finished up work at the peak of the most recent commercial real estate boom in 2007, according to Business Journal data.
The good news for developers is that a few large projects still are on the fast track for construction, which will add to the area’s pipeline. And a few long-planned development projects could also see action—if long-standing tenant issues and city approvals are first resolved.
Newport Center Duo
Newport Center, which is seeing its first new high-rise office built in nearly 30 years with the new Pimco tower, is preparing to double its office development activity.
A few blocks from the new Pimco headquarters, Irvine Co. is moving ahead with a second high-rise in the upscale office market surrounding Fashion Island.
The 19-story office, located next to Irvine Co.’s existing Newport Center headquarters, will total about 300,000 square feet. The project should begin in earnest next year, and the developer expects construction to wrap up in 2014.
Irvine Co., now one of California’s busiest office developers, also has speculative projects going up in the red-hot office market of Silicon Valley and has plans in the works for office construction on land it owns in San Diego County.
Irvine Co. is still said to be evaluating leasing plans for the 520 Newport Center Drive office. The company—Orange County’s dominant real estate company and landlord—is considering moving part of its own operations into the new building, as well as leasing out all or part of the building to other tenants.
Recently Quiet
There hasn’t been a sizable office in Orange County to break ground on a speculative basis in nearly five years. And with vacancy rates for OC’s office market still hovering around the 16% mark—down from more than 22% a few years ago—it could be a few years before much more spec development moves ahead.
Developers in general would prefer seeing vacancy rates closer to 10% before building anything without first having tenants lined up.
Beyond Irvine Co.’s Newport Center plans, there’s less certainty for a majority of the office projects currently on the books across the county.
Near the Irvine and Newport Beach city lines on Jamboree Road, developers of the Scholle Center office campus recently filed plans with Irvine’s planning commission to reconfigure space where a 107,000-square-foot building has been planned. A time frame for any development of the building—proposed for 19010 Jamboree Road—hasn’t been disclosed.
Real estate sources suggest Google Inc., which has OC offices at Scholle Center, is exploring its office needs and could be a potential tenant at the building.
Another potentially huge office project still being debated at the planning-commission level is a new office campus at Tustin Legacy for Irvine-based chipmaker Broadcom Corp.
Broadcom Talks
Broadcom is believed to be considering the development of 1 million square feet or more of office space at the 820-acre Tustin Legacy site, and closed-door talks between Broadcom’s representatives and Tustin officials have been ongoing for almost a year. The company currently occupies close to 900,000 square feet of space in University Research Park in Irvine, under a lease that runs through 2015.
The most recent talks were reported in Tustin Planning Commission filings earlier this month, with Broadcom referred to as O.C. Property Co. LLC. The price of the Tustin Legacy land and terms of payment remain under negotiation, according to the filings.
Other office projects lacking construction timelines include Mike Harrah’s 600,000-square-foot One Broadway tower in Santa Ana, as well as a trio of offices in Aliso Viejo proposed by Shea Properties Inc.
OC’s largely thriving industrial market—which has a vacancy rate of under 5% and few large blocks of available space—would appear to be primed for a development surge. But only a handful of projects have broken ground in the county during the past year.
Under Way
Notable projects under way include a 101,500-square-foot factory in Fountain Valley that’s being built for probiotic beverage company Yakult Inc. The development, which broke ground this summer, should be running by early next year.
Newport Beach-based Western Realco also has a pair of industrial projects moving ahead in Anaheim and Brea.
Almost 900,000 square feet of speculative industrial space in the Anaheim Canyon business corridor also is expected to move ahead soon. The project, pegged for land along the Riverside (91) Freeway, has been proposed by the local office of Sacramento-based Panattoni Development Co.
The buildings would go up on a tract once used by aerospace giant Boeing Co. The developer is expected to hold an open house for the project next month in preparation of construction work that would likely move ahead early next year.
