It’s often said the lifeblood of Orange County’s office market is its base of small tenants, but the bigger fish are likely to attract outsized attention from landlords, developers and brokers this year.
An estimated 12 to 20 tenants with leases for 100,000 square feet or more of office space here are on the lookout for new locations elsewhere in the county, according to various brokerage sources.
Those companies—a mix of technology firms, lenders, medical device companies and other high-profile businesses—currently lease in excess of 3 million square feet of local office space. That’s enough space to fill One Broadway Plaza—the proposed 37-story skyscraper planned by developer Mike Harrah for downtown Santa Ana—six times over.
Companies most often mentioned as being on the market include some of OC’s biggest names, such as Broadcom Corp., Blizzard Entertainment Inc. and Masimo Corp., all based in Irvine, and Santa Ana-based Corinthian Colleges Inc. Add to that list a few large national companies with sizeable operations here, including Google Inc. and AT&T Inc.
“It could be a busy year, with the companies looking for sizeable (amounts of) space,” said Kurt Strasmann, senior managing director for the OC operations of CBRE Group Inc.
This year’s crop of prospective big leases follows an active 2011, when nine office leases in excess of 100,000 square feet were signed, according to brokerage reports and Business Journal data. Four of those deals involved relocations.
Slim Pickings
Similarly, not every company considering relocating is expected to move.
That’s fortunate, as there are only about 15 contiguous blocks of empty office space 100,000 square feet or larger, down from 22 a year ago, according to a recent market report from the Irvine office of tenant brokerage Studley Inc.
“Tenants looking for larger blocks are encountering some challenges as a few landlords pare concessions,” Studley said.
Only a handful of the available buildings are truly class A-type properties, which can give those landlords negotiating power in their deal-making, CBRE’s Strasmann said.
“For the big stuff, there are very few choices, and there won’t be any (new choices) for some time,” he said.
A few landlords, such as Palo Alto-based Menlo Equities LLC, are holding out for big-name tenants for their large blocks of empty space.
Menlo’s local properties include 420,000 square feet of space in the Quintana office campus in Irvine.
“It is our experience that big tenants fill big buildings,” Henry Bullock, Menlo’s chairman and founder, told the Business Journal late last year.
A listing of the largest blocks of empty office space in OC, as reported by research firm CoStar Group Inc., can be found on page 25 of this week’s special report.
Tenant Power
Currently it’s still considered to be a tenant’s market despite the lack of large-space options.
Monthly asking rents at higher-end buildings here have fallen just about every quarter since the end of 2007 and now average about $2 per square foot. That’s down from the roughly $2.70 per-square-foot mark seen nearly five years ago.
Many, if not most, of the companies rumored to be considered moving will see their existing landlords make deals suitable to both sides, local brokers said. Several of the companies cited by brokers as being on the market still have several years left on their current leases, so any decision to stay put or relocate might not take place this year.
For instance, medical-device maker Masimo leases about 174,500 square feet of space in Irvine for its corporate headquarters, product manufacturing, research and development, warehousing and distribution operations. The leases covering most of that space expires in September 2014, according to the Masimo’s regulatory filings.
Development Whispers
The premium on existing large, empty buildings has put a focus on the potential for new office construction for a few local companies, most notably chipmaker Broad-com and videogame developer Blizzard Entertainment, a unit of Santa Monica-based Activision Blizzard Inc.
Broadcom leases close to 900,000 square feet of space in University Research Park, a business park next to the University of California, Irvine, that runs along the San Joaquin Hills (73) Toll Road.
Blizzard leases about 335,000 square feet of offices in the Irvine Spectrum. Much of that space was once used by Broadcom, which occupied space in the Spectrum until it moved to University Research in 2007.
Both companies have been cited as tenants for potential build-to-suit projects of up to 1 million square feet of space apiece. But it’s unclear when—or even if—either company might move ahead on such a project.
Broadcom held discussions with Tustin city officials this year about buying a sizeable portion of land at the city’s former Marine helicopter base for a potential new campus, but the status of those closed-door talks is unknown. Broadcom has almost five years left on its current headquarters lease, and sources not involved with the company suggest its talks with Tustin could amount to a mere negotiation ploy with landlord Irvine Company of New-port Beach.
Blizzard said last month it planned to cut 600 of its 4,700 worldwide employees for the “long-term health” of the company. The cuts—along with uncertainty over Blizzard’s plans for new game-title releases—means the company is likely to postpone considering its space needs for now, according to area brokers.
