The pandemic was not equal in its impact on the local office market.
New, modern buildings in prime locations saw continued activity from prospective tenants in growth mode, while older, outdated stock saw tenants flee in search of better options as companies planned their office return.
A lull in office construction and a wave of office-to-industrial conversions helped to stabilize the office market over the past two years, but now, new development appears to be picking back up, as landlords grow more confident in the strength of new creative office projects.
“The shrinking office supply caused by industrial conversions has created a huge opportunity to stimulate future development,” Parke Miller, executive vice president at area landlord Lincoln Property Co., said. “We have seen a big interest from several notable tenants in the second phase of Flight.”
Miller said his firm is in the design process for the second phase of Flight at Tustin Legacy, which first delivered in 2019 as a 470,000-square-foot collection of offices and amenities.
The second phase, located on a site that can accommodate nearly an additional 500,000 square feet of buildings, is slated to kick off in the second quarter of 2023.
GainsÂ
OC property management offices saw portfolio increases both inside and outside of the county, with the area’s 20 largest property managers increasing their local office, industrial and retail space by 5.9% to 186 million square feet. Including properties outside of OC, local offices managed 389.2 million square feet across 3,296 properties, up 1% and 5%, respectively.
Leading gains is JLL, with a reported 78% boost in its local portfolio, good for the No. 2 place on the list. Irvine Co., which oversees its extensive base of local properties, took the top spot for the second consecutive year.
The Newport Beach company boosted its local portfolio by nearly 300,000 square feet last year, most notably delivering the first phase of its Innovation Office Park project, where the second phase recently kicked off construction.
Irvine Co. is building north of 600,000 square feet of office across its two new projects at Spectrum Terrace and Innovation Office Park.
New Product
The newer office projects appear to be generating most of the leasing attention, with tenants like Amazon, Virgin Galactic Holdings and Sega of America inking deals this year at Spectrum Terrace, Flight and Innovation Office Park, respectively.
“Flight has been a shining star for us,” Miller said. “Since the end of 2020, we’ve signed 15 deals there totaling 190,000 square feet.”
The campus is about 60% leased, though a few deals nearing completion will take occupancy closer to 80% in the next month or so. New tenants include ChromaDex, Lendistry and Avetta.
Miller hopes the campus will be fully leased by summer.
Lure Them Back
Though most companies have yet to return to the office on a full-time basis, the number of employees coming in at least on a hybrid schedule has picked up substantially since the start of this year, notes John Combs, principal of RiverRock Real Estate Group.
“We are seeing between 30% and 60% of physical occupancy across our portfolio, which is up from about 20% six months ago,” Combs said.
Though employees are coming back, they still demand flexibility. Providing that flexibility has been a recruitment strategy, as companies struggle with a challenging hiring environment.
“Staffing is our biggest challenge,” Combs said.
Hoteling desks, or employees sharing workstations as people alternate which days they come into the office, has become a common option for the hybrid workforce.
Tenants are still requesting the sanitation and safety measures put in place at the onset of the pandemic, from hand sanitizing stations to plexiglass dividers.
Some landlords are going beyond those measures, with investments in technology upgrades and new amenities like restaurants to lure employees out of their homes and back to the office.
Emmes’ Centerview office campus at the Irvine Concourse recently opened its third restaurant since the start of the pandemic: Sol Mexican Cocina.
Four additional eateries are set to open along Main Street at Eighteen Main, a 17,000-square-foot redeveloped restaurant pad at the former site of McCormick & Schmick’s. The yet-to-open eateries include The Goldfinch, a sister restaurant to The 908 in Long Beach; The Trough, a sandwich shop concept from The Blind Pig in Rancho Santa Margarita; a sushi restaurant; and a new concept from the owners of San Diego French patisserie, Madeleine Café & Bakery.
“The leasing activity is occurring substantially in new office product, or offices that have seen substantial investments,” said Jay Carnahan, founder of Orion Property Partners.
