Commercial development in Orange County isn’t anywhere near the levels seen during the last boom years, but there are a few shovels getting ready to break ground on the first big projects in some time.
Two new developments—an office high-rise in Newport Beach and a multi-building project in Anaheim—have been announced in the past month.
Together they total more than 1.2 million square feet of new construction. That’s more than all the commercial development seen here in the past two years, not including apartment projects.
In the high-end office market of Newport Center, Irvine Company is planning a 20-story, 380,000-square-foot building for investment manager Pacific Investment Management Co.
The project’s expected to break ground this summer and finish construction by mid-2013.
It would be the first office tower to go up in Newport Center in nearly 30 years, and the first of its size to break ground in the county in about four years.
Canyon Corridor
In Anaheim’s Canyon business corridor along the Riverside (91) Freeway, the local office of Sacramento-based Panattoni Development Co. is moving ahead with the largest industrial project seen here in nearly five years.
Panattoni has plans for up to eight buildings totaling close to 900,000 square feet near La Palma Avenue. The developer tentatively is looking to sell four of the buildings and lease the others.
Apartments and condominiums also are getting another look from developers in the area.
A trio of apartment projects for the area around John Wayne Airport in Irvine have been announced and could go up later this year.
Those projects, proposed by Arlington, Va.-based AvalonBay Communities Inc. and Dallas-based Mill Creek Residential Trust LLC, should total about 530 apartments.
The recent slate of projects comes at a time when commercial development in the area largely has been an afterthought, with several sizeable projects that had been proposed either delayed or scrapped altogether.
There was only about a million square feet of new commercial projects completed in 2010 and 2009, according to Business Journal records.
Close to 8 million square feet of commercial projects were completed in the recent peak year of 2007, with a bulk of those built on a speculative basis.
In 2008, as projects that started before the onset of the recent recession finished up construction, another 3.5 million square feet of space was completed.
No one’s expecting a return to 2007—or even 2008—levels for commercial development anytime soon.
Office vacancies in the county now run at about 18% compared to the 10% or so usually seen before speculative construction projects are considered prudent.
Likewise, industrial vacancy levels in the country, though still relatively low at about 6%, remain nearly double what were seen a few years ago.
Developers of recently proposed projects still think they have justifications for their individual buildings.
Newport Beach-based Irvine Co. has Pimco—which handles $1.2 trillion in investments for pension funds, insurers, corporations and others—committed as a tenant for the entire high-end building its planning.
Appropriate Stature
The building is being designed by architect Henry Cobb of New York’s Pei Cobb Freed & Partners, the firm behind the design of Los Angeles’ U.S. Bank Tower. The office is set to meet high environmental standards, according to Irvine Co.
“The new building will be appropriate for a company of Pimco’s stature,” said Doug Holte, president of Irvine Co.’s office properties division, in an interview with the Business Journal last month.
Pimco, whose current offices are a few blocks away from the new development, also is expected to be close to a high-water mark for local office rents.
Terms of the lease weren’t disclosed. Real estate watchers familiar with Newport Center office leasing estimate that Pimco could be paying monthly rents anywhere from $5 to $6 per square foot for its space.
That’s roughly double the rents paid for typical class A space in the county and a healthy increase from the baseline in Newport Center.
The highest monthly rents being advertised by Irvine Co. in Newport Center run about $4.40 per square foot.
In Anaheim, Panat-toni hasn’t announced any pre-leasing or sales for its upcoming development plans on a chunk of land once used by Boeing Corp.
But with improving economic conditions, rising demand for large industrial buildings in the region, and falling construction costs, executives with the developer and brokers representing the project think now’s a good time to build.
“From a speculative development standpoint, there’s a lot of pent-up demand” in North Orange County, said Brad Bierbaum, senior vice president for the Anaheim office of CB Richard Ellis Group Inc.
Larger North County industrial buildings now are about 96% full after a string of high-profile leases in the past six months, according to Bierbaum.
“We’re feeling a little bit more optimistic (about the market),” said Stephen Batcheller, a partner in Panattoni’s Irvine office.
Jobs
The projects are welcome news to the region’s construction industry.
Construction-related jobs in California have fallen from more than 930,000 in 2006 to about 560,000, according to industry data.
The construction industry accounted for about 65,000 jobs in Orange County in February, the most recent data available. That’s a drop of about 40% from the peak several years ago.
The Pimco office project alone could bring more than 1,000 construction-related jobs to the area, according to Irvine Co. officials.
Early Indicator
There are several very large developments in Orange County that are expected to start construction in the next year (see story, left).
This is the biggest of six office buildings currently under construction in Orange County, according to data from CoStar Group Inc.
It’s the 194,000-square-foot Extron building on the 1000 block of Ball Road in Anaheim. Developer C.W. Driver is expected to complete the new headquarters for Extron Electronics Inc. in June.
Extron makes electronics for video display systems, and the new building is an expansion on what had been a parking lot on its property near the Orange (57) Freeway.
The company plans to shift its headquarters operations to the new building.
Another significant project is under way on East La Palma Avenue in Anaheim, where Kaiser Foundation Hospitals expects to complete a 100,000-square-foot office in August.
The other current office construction projects reported by CoStar range from 17,600 to 4,500 square feet. All of them broke ground during the recent downturn.
Current trends indicate a recovery on commercial construction, so it will likely take something bigger to make CoStar’s list of office projects next year.
