New Real Estate Buzz: Business Consolidation
By DANIEL D. WILLIAMS
In the go-go days of the late 1990s, corporate expansions drove commercial real estate. These days, it’s corporate consolidations.
With plenty of cheap office and industrial space for the taking, companies with operations spread among several facilities are using the opportunity to group together call centers, manufacturing and other operations.
“Corporate consolidations are increasing in velocity as everyone is searching for ways to reduce expenses,” said Mike Parker, Western division president for Dallas-based Koll Development Co. “It is a single decision by management that can save millions of dollars in annual rent.”
There are other savings besides rent. Take security. Instead of having four security crews for four different facilities, companies can cut costs by moving to a single location with one security crew.
In the past year, Orange County has seen several consolidations, both in office and industrial space.
Earlier this year, Chicago-based insurer Aon Corp. consolidated four Costa Mesa offices at 1901 Main St. in Irvine’s airport area, taking 44,000 square feet with an option to expand to 66,000 square feet.
In July, Tyco International Ltd.’s AFC Cable Systems Inc. moved from multiple sites to 240,000 square feet of industrial space in Fullerton. It now shares space with another Tyco unit, Allied Tube & Conduit.
In September, Hampton, N.H.-based healthcare products maker Fisher Scientific International Inc. said it planned to move its operations in Tustin and Yorba Linda into a single facility in Chino.
The market is ripe for more consolidation as leases come up, said Jerry Holdner, vice president of market research in Voit Commercial Brokerage’s Anaheim office.
“The current cycle took off in ’97, and a lot of people signed five-year leases,” he said. “So many of those leases will be rolling over and people will need to make changes in the next 24 months.”
Look for landlords to vie for consolidation plays, sources said. There are four Fortune 500 companies in California in talks for major consolidations, one source said.
Corporate consolidators often end up in newer, more efficient buildings.
The longtime standard in offices is 300 square feet of space per person. In the newer buildings, landlords are putting people in 150 square feet.
A move toward more efficiency has been in play for years, but the upswing is new, said Steve Van Amburgh, chief executive of Koll Development.
“Over the last five months, I think you could call it a frenzy,” he said.
While corporate consolidations are welcome business for landlords and brokers, the moves don’t help OC’s vacancy rates. When tenants move from several older buildings to a single new one, they leave behind a big hole. And leasing older space is tough, said Steve Case, senior managing director with the Orange County office of CB Richard Ellis Services Inc.
In many cases, landlords are dividing older spaces and renovating them for multiple tenants, he said.
“That has become the common practice for second generation property,” Case said.
