Orange County’s tenant improvement market rebounded from a two-year slump in 2010, with the area’s largest contractors posting modest increases in volume of work and revenue.
Now they have their eyes on a handful of high-profile projects making their way to the market.
The 24 largest companies here reported $453 million in revenue from tenant improvement work in OC last year, according to this week’s Business Journal list.
That’s just under a 3% increase in annual business compared to companies on last year’s list. The gain reverses two years of declines seen during the recession, when leasing activity plummeted in all sectors of the county’s commercial real estate market.
Companies reported a 17% year-over-year decline in business in 2009, and a 6% dip in 2008.
Those were the only declines since the Business Journal began tracking the industry with an annual list in 2002.
Annual increases of 10% or more were the norm among tenant improvement contractors until the recession.
Signs of Stability
With OC’s office market showing signs of stabilizing, and the area’s industrial market tightening up again after a string of larger lease deals, tenant improvement contractors look to have a few more options for work these days.
The volume of work done by companies on this year’s list increased by nearly 5% from a year earlier, with about 14 million square feet of tenant improvement work completed here last year.
The prior year’s list saw a 10% drop in square footage.
The average tenant improvement project here cost about $32 per square foot last year, according to data provided to the Business Journal.
That’s roughly $2 per square foot more than a year earlier, an increase of about 7%.
Costs Vary
The costs of tenant improvements vary greatly.
Law firms and other financial services companies sometimes spend upward of $100 per square foot building out high-end office space.
Improvements to large retail spaces, such as a fitness center, can cost $60 per square foot or more.
Tenants in older office buildings and warehouses often spend a fraction of that to get their office operations up and running.
With construction costs still at relatively affordable levels—and bidding for projects still highly competitive—the $2 per square foot increase seen in projects here last year likely reflects more high-end projects rather than improved negotiating power for contractors.
A few more high-end projects could be making their way to the market in the next few years, including an office tower slated to be built in Newport Center for Pacific Investment Management Co. that could be among the pricier projects the area’s office market has seen in years.
Industrial buildings being planned in Anaheim—as well as a new Anaheim campus for Fullerton’s Eastside Christian Church that could cost $20 million or more to upgrade—are among other large projects that could bring area tenant improvement contractors some work in the next year or two.
As has been the case in the past several years, area landlords still are picking up much of the tab for any tenant improvements, especially for office deals.
For high-end offices, tenants still can expect to get allowances from $35 to $60 per square foot from their landlords to redesign leased space, according to data from the Irvine office of tenant brokerage Studley Inc.
While this year’s list shows improvements for the bulk of the companies included, several of the top companies missed the trend.
Three of the top five companies on this year’s list reported year-over-year declines in the dollar value of work done in OC last year. There were only four decliners on revenue altogether.
The top four companies on this year’s list were among the five contractors to report year-over-year declines in square footage of work last year.
Thirteen companies on the list reported increases in revenue, while seven declined to provide figures and were estimated by the Business Journal to have flat growth.
Brea-based KPRS Construction Services Inc. retained the top spot on this year’s list despite a drop of about 11% in square footage compared to 2009.
KPRS reported some 1.4 million square feet of projects last year, including work for Henkel North America, a unit of Germany’s Henkel AG that makes detergents, toiletries, cosmetics, industrial adhesives, sealants and other products.
Henkel last year moved to a 77,626-square-foot office at the Jamboree Business Center in Irvine.
KPRS reported working on $61 million of tenant improvement work here last year, an 11% drop from a year ago.
Howard Building Corp. of Los Angeles reported $45.8 million in revenue for its Costa Mesa office, an increase of less than 1% that kept it in the No. 2 spot on the list. Among projects it reported working on was the 100,000 square foot expansion of Irvine game maker Blizzard Entertainment Inc.
Corporate relocations provided a good chunk of business to a number of companies on this year’s list.
The Irvine office of Long Beach-based Turelk Inc., No. 3 on this year’s list, reported working on the 47,000-square-foot relocation of the local offices of Oracle Corp. to 17901 Von Karman Ave., among other deals.
Turelk reported an increase of about 2% in the dollar value of its business last year, although its square footage declined nearly 12%.
The largest corporate relocation last year was by disk drive maker Western Digital Corp. from Lake Forest to a 323,000-square-foot office in Irvine’s Park Place campus.
Irvine-based Snyder Langston worked on the three-building project, which helped put the company in the No. 9 spot in this year’s list.
Western Digital’s new space includes offices, electronics testing laboratories and a data center. Among other features, the project included a new exterior electric substation, as well as a new 4,500-square-foot exterior service yard to house an emergency generator and water system, according to the contractor.
Among companies on the top half of the list, No. 8 Suffolk-Roel saw the largest year-over-year increase in business, reporting $22.9 million in work for 2010.
That’s nearly a 44% bump in year- over-year work for the newly renamed company, which is the result of January’s acquisition of San Diego-based Roel Construc-tion Co. by Boston-based Suffolk Con-struction Co.
Among the projects Roel reported working on last year was the relocation of Edison Mission Energy’s Irvine offices to 3 MacArthur Place in Santa Ana.
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Download the 2011 OC’s LARGEST TENANT IMPROVEMENT CONTRACTORS list (pdf)
