The data center boom is reshaping the real estate market around John Wayne Airport and other parts of Orange County.
Telecommunications and technology companies accounted for about a third of all real estate deals in the airport and South County markets last year, according to Grubb & Ellis Co. Driving much of the activity are moves by companies and investors to acquire space for data centers,rooms of computer servers and networking gear where businesses lease space to run e-commerce and other electronic operations.
With its gleaming office buildings and robust business climate, the airport area is ripe for data centers. A major draw: access to high-capacity fiber-optic lines.
“The telecommunications industry still seems to be one of the most active entities here in Irvine,” said Scott Read, a Grubb & Ellis broker. “There’s been real strong interest in buildings that are on fiber-optic networks. And there are certainly a lot of them around here in the airport area.”
The increased demand for space is bringing in creased rents for landlords and record prices for property sellers. In some cases, the data center boom is giving new life to older buildings that until recently had fallen out of favor.
In November, Boston-based investment firm Beacon Properties paid $15.4 million for a 118,000-square-foot industrial building on Von Karman Avenue in Irvine. The price tag,$130 per square foot,is believed to be the highest ever paid for an industrial building in OC. Beacon plans to turn the nondescript building, previously owned and occupied by file-cabinet maker PlanHold Corp., into a data center.
Back in August, Level 3 Communications Inc., the Broomfield, Colo.-based builder of fiber-optic data and communications networks, purchased an 87,826-square-foot building in Tustin for $7.5 million. Level 3 plans to spend another $2.5 million or so to upgrade and renovate the facility and bring in $1.8 million in computer and networking gear.
GlobalCenter Inc., a Global Crossing Ltd. unit that’s being acquired by Santa Clara-based Exodus Communications Inc., has signed a 15-year, $70 million lease for 232,000 square feet at Parker Hannifin Corp.’s aerospace group campus in Irvine.
The lease is the first step in a strategy by the new owners of the complex,recently acquired by KFPLB Michelson Jamboree LLC from Cleveland-based Parker Hannifin,to turn part of the campus into a data and telecommunications center.
Exodus’ $6.5 billion buy of GlobalCenter, expected to close in the first quarter, stands to make the company a big player in OC data centers. Last year, the company built a 110,000-square-foot data center with office space on Gillette Avenue in the Irvine Business Complex.
Other data center operators include Costa Mesa-based Epoch Internet Inc., which operates a facility out of its OC headquarters, and Greenwood Village, Colo.-based Internet services company FirstWorld Communications Inc., which opened a 50,000-square-foot data center in Irvine last year.
Besides driving up property values, data centers offer a side benefit. In terms of parking requirements and the amount of commuter trips generated, they are much less intensive than traditional office and industrial uses. That can help speed up the process of getting city approvals.
A typical office requires four parking spaces for every 1,000 square feet of space. Research and development facilities require a 3-to-1 ratio, while industrial operations require a 2-to-1 ratio. Compare that with telecommunications uses, which average 1-to-1.
In the third quarter, telecom and other companies were involved in 31.6% of all office and industrial transactions in the airport and South County areas, according to Grubb & Ellis.
“That really signals a strong, lasting tech base in the airport and South County areas,” said Craig Jones, Grubb & Ellis’ Research Services manager and author of the firm’s study.
“Telecom firms have demonstrated that they have a real interest in our market and a continued interest in spreading to South County.”
The third quarter numbers are a continuation of a trend that started in 1997, when telecom and other tech companies accounted for 32.7% of real estate transactions in the airport and South County areas. Since then, their share of real estate transactions in those markets has declined a bit, but still hovers around 30%.
More telecom deals could be in the works. Real estate sources say SBC Communications Inc.’s Pacific Bell is looking to set up at least one telecommunications center and is scouring the airport and South County areas in search of buildings on or near fiber loops. n
