Orange County seems to be the site of a three-way tug of war as developers juggle space for office, industrial and residential developments.
With office and industrial availability rates at historic or near-historic lows and housing prices at record highs, developers are in the enviable position of choosing between good, better and best options.
The demand for housing appears to be limitless. During the past few quarters, developers already have opted to convert older industrial space or potential office space to residential use.
Now, details of the former El Toro Marine base project may be changing. Plans originally called for 3 million square feet of commercial space, including office and R & D; space.
However, recent reports suggest that developer Lennar Corp. may be devoting more square footage to residential use.
The Irvine Company also is negotiating changes in its development plans with Irvine. If all the proposed changes are approved, 3.4 million square feet of space slated for commercial uses would be used for housing.
Inventory on the Horizon
Despite the requirements of the housing market, about 1.6 million square feet of office space is under construction. Of this, some 800,000 square feet is available.
Scholle Corp.’s development at the corner of Jamboree and Fairfield in Irvine ultimately will consist of three class A office buildings.
There is 121,000 square feet available in Building 1, with all of Building 2’s 200,000 square feet preleased by Impac Mortgage Holdings Inc.
The Irvine Co. is expected to finish five class B buildings next January. These buildings, on El Camino Real in the Irvine Technology Center, are 48,600 square feet to 62,850 square feet apiece.
On Laguna Canyon Road, the Irvine Co. is leasing six class B office buildings, which are under construction and set to be finished in June. These buildings form part of the Discovery Business Center and range from 44,000 square feet to 64,000 square feet.
Meanwhile, several office projects are in the proposal phase. Maguire Properties is set to build a 600,000-square-foot office tower at Park Place in Irvine with subprime lender New Century Financial and law firm Gibson, Dunn & Crutcher taking nearly half of the space.
Maguire Properties also is shopping for a leasing commitment for its proposed 18-story class A building,phase five of the Pacific Arts project at 3201 Park Center in Costa Mesa.
Several new projects have been proposed in Irvine. Transwestern was planning to start building its 230,000-square-foot office tower on Von Karman in August, but groundbreaking was pushed back to the fall.
Early next year, the third phase of Opus Center, a 300,000-square-foot class A project at 2050 Main St. is slated to begin construction. Additionally, a Hines/Crescent partnership plans to break ground in February on a 257,000-square-foot class A building at 2211 Michelson Drive.
The Irvine Co. is planning to deliver two 14-story class A office buildings by the end of 2007. The buildings will add about 314,000 square feet in all.
In Aliso Viejo, phases three, four and five of Shea’s Vantis project are in the proposal phase. These buildings range in size from 125,000 square feet to 170,000 square feet.
Also in Aliso Viejo, two class A office buildings,phase five of the Summit Office Campus,are expected to break ground in November. These buildings will add 260,000 square feet to the market in early 2007.
Tenant Allowances
Market tightening is expected to result in rising rents and less generous concessions.
During the past quarter, landlords stopped giving one month of free rent for class A space less than 50,000 square feet and four free months for space bigger than 50,000 square feet. They now are offering no months of free rent.
Meanwhile, tenant improvement allowances in the third quarter fell $1 to $17 per square foot for space less than 50,000 square feet, versus the second quarter. For space bigger than 50,000 square feet, concessions also fell $1, to $24 per square foot.
Tenant allowances for class B space followed a similar pattern in the quarter.
Data and analysis by Studley Inc.
