COMMERCIAL
On the cover of last week’s Business Journal, I broke a story about the Federal Deposit Insurance Corp.’s rumored plans to lease 200,000 square feet or more of office space in Irvine.
The most likely site for the lease, sources said, was Irvine Company’s 40 Pacifica tower in the Irvine Spectrum, which is being kept vacant until the Newport Beach-based landlord finds a multifloor tenant for the 310,000-square-foot building.
Next door to that tower, at 20 Pacifica, Irvine Co. is taking a different strategy with leasing. And it’s finding that small, but pricey, leases are proving to be big sellers for the newly finished office building.
On the 14th floor of 20 Pacifica, the landlord recently rolled out what it’s calling “Elite Spec Suites” for smaller tenants, which typically need 1,500 square feet to 6,000 square feet.
The offices are ready for move-in, with a higher level of upgrades and tenant improvements than the landlord’s regular smaller-tenant suites have.
They also come with a higher price tag. Rents run about 15% to 20% higher than the space normally would command, said Steven Case, senior vice president of leasing for Irvine Co.
The landlord isn’t disclosing the exact rents it is charging at 20 and 40 Pacifica. Brokers say they’re running close to $4 per square foot.
The higher price isn’t hurting leasing. Case said that nearly half the 14th floor was leased within 45 days after the program was instituted. Tenants that signed up include accounting firm Donovan Co., Irvine-based real estate investor Millennium Housing Corp. and Integra Capital Group Inc.
The company’s considering expanding the program to other floors in the building, Case said.
Industrial Slowdown
Orange County’s industrial market remains solid compared to the area’s office market, but there continue to be signs of a slowdown.
The county’s base of industrial buildings, which totals about 245 million square feet, ended the third quarter with a vacancy rate of 4.4%, according to the Irvine office of Voit Commercial Brokerage LP.
While still a low figure, vacancy rates here have increased nearly 15% compared to a year earlier, according to a report by Voit’s vice president of market research, Jerry Holdner. Including direct and sublease space, OC industrial buildings now count an availability rate of 7.9%.
As vacancies increase, lease rates in the county are decreasing. The average asking lease rate in the third quarter was 76 cents, a drop of 1.3% from a year earlier and 4 cents lower than second quarter’s figure, which was the highest level seen here in the past two years.
Likewise, the average asking sales price for an industrial building in the third quarter was $164.28 per square foot. That’s down from $172 per square foot a year earlier and is the lowest average asking sales price in two years, Voit reported.
Expect the slow level of local job growth to mean that industrial rental rates will drop as much as 5% in the next year, said Kurt Strasmann, managing director of OC brokerage operations for Santa Ana-based Grubb & Ellis Co.
Strasmann also expects capitalization rates for the area’s industrial buildings to fall by about 25 basis points during the next year.
Buying Spree
Newport Beach’s KBS Realty Advisors might be the most active office buyer in the country as of late.
Most recently, the company said in a filing with the Securities and Exchange Commission that its KBS Real Estate Investment Trust II fund, which has raised some $172 million to date, was paying about $36 million for a two-story office and flex space building in San Jose.
The 142,700-square-foot building traded hands for about $252 per square foot. Networking company NetGear Inc. this year began a 10-year lease at the property and uses the entire building for its headquarters.
NetGear currently pays about $2.6 million a year in rent for the building.
KBS also recently closed on a $365 million deal for a 1.2 million-square-foot office park in New Jersey and a $73 million deal for an eight-story, 224,000-square-foot office building in the suburbs of Philadelphia.
Evening for Autism
Barry Saywitz, president of Newport Beach-based real estate brokerage the Saywitz Co., is hosting “An Evening for Autism” event at his home in the Belcourt neighborhood of Newport Beach on Saturday.
Tickets for the event are $150 per person. More information can be found at aneveningforautism.org.
Among other charities, proceeds from the event will benefit Newport Mesa School District’s autism programs. Saywitz said the tropical-themed event is on target to raise more than $250,000.
