County’s Office Space Market Remains Hot With New Developments on Tap
By
Steve Duffy of Ernst & Young’s Orange County operations says he’s happy to trade the 180-degee ocean view of his former office at Newport Center for the company’s new local digs,what he calls the “workplace of the future” at Lakeshore Towers near John Wayne Airport.
“I’m looking forward to joining all my colleagues at our new offices,” said Duffy, an Ernst & Young managing director. “We’re going to be more productive.”
Last week, E & Y; consolidated its three local offices and 600 workers into the top three floors at what is being called Ernst & Young Plaza at Lakeshore Towers. The 10-story building is one of two new Lakeshore Towers Class A office buildings facing the San Diego (I-405) Freeway at Von Karman Avenue. And it’s one of several new buildings in the dense office market in the airport area. Ernst & Young signed a lease at a $2.30 a foot.
The accounting firm is one of scores of companies leasing up county office space at a record clip. The strong economy is enabling companies to upgrade to cutting-edge facilities with more prestige.
In the second quarter, more than 1 million square feet of office space was absorbed in Orange County, according to Voit Brokerage Services. Other firms say their absorption totals should come in at around 1.5 million square feet for the second quarter.
More space is coming on line, too. New office construction in Orange County was 2.8 million square feet in the second quarter,up slightly from the 2.7 million square feet in the first quarter. Six million square feet more is planned with the new and proposed office construction near the airport and in central and South Orange County.
The second quarter absorption rate is double that of the first quarter, according to Voit. And two-thirds of the first half’s absorption has been in the red-hot airport market with South Orange County office buildings a distant second at 359,000 square feet, according to Voit’s chief analyst Jerry Holdner. North Orange County posted 148,000 square feet of net absorption and central and west Orange County combined for a net loss of 100,000 square feet of space.
It’s no surprise that the airport area and the adjacent South Coast Metro market dominates the county’s office scene. It has the largest share of office buildings in OC.
But when it comes to new construction, South Orange County,which also is loaded with about 13 million square feet of office,leads the way. More than 2 million square feet of office buildings are being built, ranging from the University of California, Irvine and the Irvine Spectrum south to San Clemente, compared to about 800,000 square feet under construction at the airport.
In central Orange County about 500,000 square feet are under construction; half of that construction is in a single project, the 260,000-square-foot Stadium Crossings adjacent to Edison Field in Anaheim.
“If Orange County’s office development in this cycle was a baseball game, we’d be in extra innings,” said Bill Halford, president of The Irvine Company’s office division.
“This game has run longer than many anticipated because the economy’s so good. By the same token, you’re going to see commercial development decline, not because of demand declining but because so much land has been developed,” he said.
Of the available entitled development sites, “all the low-hanging fruit has been picked,” he said.
Halford’s division is developing the 100,000-square-foot 888 San Clemente building in Newport Center, a project that is commanding the highest rents in the county: $4.75 to $5 per square foot. Seventy-five percent of the building was pre-leased. The top three floors at 888 were leased by Paine Webber and the second floor by San Francisco-based investment bank Chase H & Q.;
By next spring, the Irvine Co. expects to complete 22 Corporate Plaza, a 50,000-square-foot sister building to four others developed in the last two years. This and the 888 building are the last two office buildings that will be developed in Newport Center, Halford said.
Demand in the airport area is so strong that no one in the industry is concerned about overbuilding. Developers and the equity lenders are much more disciplined in this development cycle than they were in the late 1980s before the recession and collapse of the savings and loan industry, observers say.
One broker said there are so many growing companies needing space that 100,000-square-foot office requirements hit the market with regularity.
The market had little difficulty leasing up 800,000 square feet at the 1.8-million square-foot Park Place office project at Jamboree Road and Michelson Drive after Fluor Corp. relocated its headquarters to Aliso Viejo last year.
The extra-large 40,000-square-foot Park Place floor plates did not faze ConAgra Grocery Products’ as the firm decided to move from its longtime Fullerton location. The grocery giant leased 400,000 square feet. With additional leases to high-speed Internet access provider Flashcom Inc. and Caltrans, the huge hole left behind by Fluor Daniel and AirTouch Communications, now Verizon Wireless, virtually has been filled.
In the University Research Park near UCI being developed by the Irvine Co., 16 two-story flex-tech buildings, totaling 800,000 square feet, are finished and occupied by such tenants as America Online Inc., Canon Information Systems, Cisco Systems Inc. and Paragon Biomedical. Eight more of the tilt-up, flex-tech office buildings are under construction, six of which are “more or less committed,” says Bob Williams, president of the Irvine Co.’s industrial division.
In contrast to the mid- and high-rise buildings that typify the airport and South Coast Metro markets, the new office landscape in South Orange County chiefly is populated by two-story, flex-tech office buildings, which range from about 35,000 square feet to 65,000 square feet. As with University Research Park, many of the larger projects consist of a community of flex-tech buildings that combine to form corporate campus environments.
Although they may look like industrial buildings, they’re priced like office space. Rents at University Research Park and in the Discovery Business Center, which is planned for 43 buildings in the Irvine Spectrum, are currently at $2 a foot. When University Research Park is complete it will total 2.3 million square feet, Williams said.
Tenant companies are leasing up space in the Discovery Business Center in the Irvine Spectrum at a healthy pace, says Brad Rawlins, a principal broker with Lee & Associates’ Irvine Spectrum office.
“It shows no sign of slowing,” Rawlins said. “The Irvine Co. still is very aggressively putting out this product. And it doesn’t matter where it is. They keep putting it up and companies are signing leases and moving in. The Irvine Co., like so many of the top developers, has a cookie-cutter approach,two-story concrete tilt-ups with punched windows. They’re doing very well with it. You can’t knock their success.”
Further south, Parker Properties opened up the community of Aliso Viejo with its 1.3-million-square-foot Summit Office Campus. Mostly high-tech companies were instantly attracted to the location and the tenants include Buy.com Inc. and incubator eDevelopments, which recently leased 114,000 square feet.
Shea Properties just completed a five-building corporate campus totaling 193,000 square feet called Town Center Corporate Park in Aliso Viejo. The two-story flex-tech project is within walking distance to the Aliso Viejo Town Center retail project.
Shea also is planning development of about 1.5 million square feet on 31 acres in Aliso Viejo.
In the community of Lake Forest, 15 new office buildings are under construction, totaling about 1 million square feet. They will be added to the existing 31 office buildings in Lake Forest and will bring the total office base to about 2.1 million square feet. Another three office buildings totaling 72,000 square feet in Lake Forest’s AJ West Ranch are planned.
Also in Lake Forest, Shea Properties is planning development of some 250 acres on the Baker Ranch with a mix of commercial projects.
The newer communities in South Orange County definitely are pulling companies from the older areas of the county in the west, central and north. And Tom Abel, a vice president in the Anaheim office of CB Richard Ellis, says he’s never seen such a wide spread in office rents from one area of the county to another.
Stadium Crossroads is leasing space at $1.25 per square foot, which has attracted computer training firm New Horizons to sign for 84,000 square feet. The company plans to relocate its offices from the Orange County Business Center just off Dyer Road at the Costa Mesa (55) Freeway in Santa Ana.
“We’re seeing a lot of tenants moving from central and north to the airport and south. But we’re not seeing as much migration back as we had hoped,” Abel said.
Meanwhile, at Lakeshore Towers, Ernst & Young employees are plugging in their laptops at more open workspaces. The office layout has increased the number of conference areas and what the firm calls “teaming rooms.”
The single big screen the firm had set up for video conferencing at the firm’s former Newport Center offices is being replaced with video conferencing on each laptop at Lakeshore Towers.
“The savings in time and travel is dramatic,” said Ernst & Young’s Duffy.
“We can have people in 100 locations participate in a video conference. We’re big on connectivity.”
