Download the 2010 TENANT IMPROVEMENT CONTRACTORS List (pdf)
Last year, Orange County’s tenant improvement market saw its worst year-over-year performance in a decade, thanks to a minimal amount of leasing activity across all types of commercial real estate, as well as aggressive price cuts for services.
The 20 largest contractors here reported $411 million in revenue from tenant im-provement work in 2009, according to this week’s Business Journal list. That’s a nearly 17% drop in annual business for the companies on this year’s list.
It’s just the second time the local tenant improvement industry’s seen a decline in business since the Business Journal started the list in 2002. The only other time there was an annual decline in work was in 2009’s list, when companies reported a 6% drop in work for 2008.
Prior to last year, companies on the list typically saw annual revenue growth of 10% or more.
The amount of work done by companies—measured in square feet—on this year’s list fell by nearly 10% from a year earlier, with about 13.4 million square feet of tenant improvement work completed last year.
Because revenue dropped more than the work itself, contractors likely are discounting their rates to attract clients.
Broken down, the average tenant im-provement project in OC cost about $30 per square foot last year, according to the data provided to the Business Journal. That’s roughly a $3 per square foot or an 8% decline from a year earlier.
Tenant improvement costs can vary greatly depending on tenant needs. Law firms and other financial services companies can spend upward of $100 per square foot building out their high-end office space, while less demanding tenants in older buildings only may need a fraction of those expenses to get their office operations up and running.
For the best office space in OC, tenants can expect to get allowances from $35 per square foot to $60 per square foot from their landlords to redesign leased space, according to data from the Irvine office of tenant brokerage Studley Inc.
Only three companies on this year’s list reported a year-over-year increase in tenant improvement revenue. Twelve companies reported declines, and five were Business Journal estimates.
Companies on this year’s list reported employing a total of 685 people, a 12.6% decline from a year earlier.
Among the few companies showing an uptick in work was No. 1 Brea-based KPRS Construction Services Inc.
KPRS moved up one spot on this year’s list, thanks to a 40% increase in tenant improvement business last year, with $68.2 million in revenue. The company reported working on some 2.6 million square feet of projects last year, a 205% increase from a year earlier.
KPRS has been emphasizing tenant improvement work as larger construction projects across the county have been harder to come by. It’s added about 10 workers to that line of business in the past year.
“TI work has been carrying the (company) the past year,” said Joel Stensby, KPRS president.
The company reported working on a total of $118 million of construction work last year, flat from a year earlier, making it the 18th largest construction firm in OC in 2009, according to the Business Journal’s June list of top construction companies.
KPRS was one of four companies to be on June’s general construction list—which saw an overall drop of nearly 13% in revenue last year—as well as the tenant improvement contractor list. It’s joined by No. 4 Swinerton Builders, part of Swinerton Inc., No. 6 Howard S. Wright Cos., and No. 15 W.L. Butler Construction Inc.
A large chunk of KPRS’ recent tenant improvement work was for Beckman Coulter Inc. The medical device company moved its headquarters to a renovated 500,000-square-foot campus in Brea. The company spent an estimated $50 million on its relocation of headquarters from a nearby campus in Fullerton, which it is now looking to sell.
Currently KPRS is working on TI work for Henkel North America, a unit of Germany’s Henkel AG.
The company, a maker of detergents, toiletries, cosmetics, industrial adhesives, sealants and other products, is moving to a 77,626-square-foot office at the Jamboree Business Center in Irvine. The move will bring one of the larger leases for an office building of late.
“There’s been more activity in (corporate) relocations,” Stensby said. “We’re (also) starting to see a slight increase in private clients looking for more deals.”
But it’s still a tough go finding work for tenant improvement or construction projects, because where there previously were five or six companies bidding for a project a few years ago, 20 or 30 bidders now is not uncommon, he said.
Joining KPRS at the top of the list was No. 2 Howard Building Corp. of Los Angeles, whose Costa Mesa office reported $45.6 million in revenue, a 3.2% increase from a year earlier.
The company reported handling tenant improvement work for two larger relocations, a 91,000-square-foot project for Irvine’s Sage Software Inc., which is moving to a different space in the Spectrum area, as well as a 57,300-square-foot project in a recently built office for Tetra Tech Inc., an engineering and consulting company.
Movers
At the No. 3 spot was the Irvine office of Long Beach-based Turelk Inc., which had held the top spot in the prior year’s list. The company reported a 14.5% drop in business this year, to $41.7 million in revenue.
The largest year-over-year increase for a company on this year’s list was No. 9 Roel Construction Co. Inc. of San Diego, whose Irvine office reported $15.9 million in tenant improvement work last year, a 50% increase. That was enough to push the company up seven spots on the list.
Among the 653,000 square feet of tenant improvement work Roel reported last year was a 60,000-square-foot project for Ista Pharmaceuticals Inc. in Irvine’s Lakeview Business Center. n
