The Orange County Social Services Agency practically has the market to itself as it explores a headquarters move from 888 N. Main St. in Santa Ana.
OC’s largest public agency was looking for a large block of readily available space for its operations, which include various services to children, the elderly and other needy individuals and families.
Its current lease for about 113,000 square feet in the Santa Ana building it’s occupied since the late 1990s expires at the end of the year. And a recent proposal from its current landlord, a unit of Santa Ana-based Caribou Industries, included maintenance on the Santa Ana building that agency officials said could prove to be a big interruption for the more than 400 employees there.
The agency has “analyzed the real estate leasing market” for buildings over 100,000 rentable square feet with the “potential to meet the minimum qualifications for space and parking,” according to filings with the Orange County Board of Supervisors.
Few other area companies and government agencies had the same requirements over that time, based on brokerage data. In fact, there’s been no new office lease larger than 100,000 square feet reported this year, excluding renewals, according to brokerage data. And none of the eight buildings the agency has seriously considered for a potential relocation has announced a sizable lease deal during over the past year.
The lack of activity for large tenants is one notable weak sign in an office market that has otherwise been rebounding, albeit slowly, from the last recession, when vacancy rates more than doubled to nearly 20%.
It might be enough of a soft spot to keep some developers on the sideline.
The vacancy rate is now around 13% or 14%, according to a sampling of data from local brokerages.
The improvement has come without many marquee deals, particularly this year.
“The market is mostly hitting a bunch of singles and doubles,” said Royce Sharf, executive vice president and head of the Irvine office of brokerage Savills Studley.
The deals are helping landlords chip away at vacancy, “but it isn’t as vibrant a market as they’d like,” said Sharf, whose firm represents tenants in lease negotiations.
A new local office report by Savills Studley said that only a handful of larger tenants are currently in the market for “bigger blocks of space, and availability appears to have stabilized with tepid deal volume.”
One big fish is Irvine-based chipmaker Broadcom Corp., which is widely reported to be negotiating a new headquarters to be built at Orange County Great Park in Irvine.
No other tenant larger than 100,000 square feet is known to be actively looking to relocate in OC.
There are 10 contiguous blocks of class A space and 14 contiguous blocks of class B space larger than 100,000 square feet in OC, according to a July report from the Irvine office of brokerage JLL.
Its data lists the largest local tenants on the market in July as Garden Grove-based Teletrac Inc., Proove Biosciences Inc. in Irvine, Fairfield, Conn.-based General Electric and Alignment Healthcare in Irvine.
The largest requirements of the four would likely be about 70,000 square feet, according to the brokerage’s data.
The absence of large-lease activity could kill some developments that have been on the drawing board.
A collective 1-million-plus square feet of new office space have been proposed in Santa Ana by Caribou Industries, in Aliso Viejo by Parker Properties, and in Irvine’s airport area by Hines Interests LP, but the developers say they won’t start work until landing a major tenant.
Newport Beach-based Irvine Company is the only office tower developer that’s started speculative work in recent years. Its 520 Newport Center Drive office is expected to be complete around the end of the year, and so far the company has announced leasing just one floor of the 21-story building.
Irvine Co. also plans to break ground this year on a 20-story, 450,000-square-foot building at 8005 Irvine Center Drive in the Spectrum area, but no tenants have been disclosed for the proposed project.
Plenty of Options
The lack of competition has been good news for the OC Social Services Agency, which reported looking at four potential headquarters locations in Santa Ana, two in Irvine, and one in Orange.
Santa Ana buildings considered included those that previously held the headquarters of telecom equipment maker Powerwave Technologies Inc., which went bankrupt last year, and of MSC Software Inc., which relocated to Newport Beach this year.
The agency also considered the Santa Ana headquarters of the Orange County Register, which is on the market for lease or sale, according to filings with the board of supervisors.
Irvine buildings the agency eyed included the former Washington Mutual campus at the intersection of Main Street and Von Karman Avenue that’s now known as Quintana, and space at the Alton Corporate Plaza office park that the mortgage division of JPMorgan Chase vacated earlier this year.
The agency appears to have settled on the Orange Center Tower, the 14-story building near Angel Stadium that was bought this year by a unit of Greenwich, Conn.-based Starwood Capital Group for about $70 million.
It “is more centrally located to most of SSA’s facilities” and will allow the agency the opportunity to consolidate administrative staff currently out-stationed in service facilities, according to county filings.
The agency has been negotiating a 15-year, 132,133-square-foot lease for the tower, which is valued at a little less than $60 million.
The average rent for the first 10 years of the lease would be about $2.50 per square foot, according to filings with the county.
The board of supervisors must still approve the lease. Last week, it postponed a public hearing on the matter until Sept. 9.
