A lack of new office, industrial and other commercial real estate construction in Orange County once again put a damper on the area’s volume of tenant improvement work last year.
The 20 largest tenant improvement contractors here reported $440 million in revenue from work done in OC in 2011, according to this week’s Business Journal list.
That’s a nearly 3% drop compared with last year’s list, which included 24 companies that combined for $453 million in revenue.
Four companies on last year’s list dropped off this week’s listing, including Boston-based Suffolk-Roel, which had been No. 8. The company said it was moving out of the TI business in OC, and the absence of the $15.9 million in revenue for its operations here was enough to account for the decline from last year.
Companies on this year’s list reported employing a total of 798 people in a 15% decline from a year earlier.
It’s the third time in four years that our list has seen a year-over-year decline in business.
Those were the only declines since the Business Journal began tracking the TI industry with an annual list in 2002. Year-over-year increases of 10% or more were the norm among tenant improvement contractors until the last recession.
This week’s Business Journal list of tenant improvement contractors ranked companies based here and elsewhere by work solely done in OC in 2011.
The list includes contractors who primarily do tenant improvement work as well as some general contractors who derive a sizable portion of their revenues from tenant improvement work.
The declines seen in this week’s list—and those declines also seen in the past few years—go hand-in-hand with the lack of new commercial buildings that have finished up work here in the past few years.
The county’s largest office, industrial, retail and hotel developers finished a little over a quarter-million square feet of new projects here last year, far and away the lowest level of commercial development Orange County has seen in recent memory.
It was the third year in a row in which less than 1 million square feet of new commercial buildings completed work in OC.
The largest, and highest-end, TI project on the horizon still is a year or so away from kicking off: interior work on the glitzy new headquarters for Newport Beach-based Pacific Investment Management Co.
The 380,000-square-foot Newport Center building, expected to open in 2014, is slated to hold a multifloor auditorium, a broadcast studio and a trading facility that’s likely to cover three floors.
Newport Beach-based Irvine Company is managing the construction of the building’s shell and core. Pimco is responsible for tenant improvements for the project; a contractor for that job, which real estate watchers speculate could run close to $50 million, has not been disclosed.
The lack of new construction appears to have driven at least a few longtime TI contractors to search out work in other business lines as in the case of Suffolk-Roel.
Four of the top 10 companies on last year’s list dropped off this week’s listing.
“It is as competitive as it has ever been,” said Randy Workman, head of the TI business for Brea-based KPRS Construction Services Inc.
With new development-related business at a premium, TI contractors here turned their attention to corporate relocations, expansions and upgrades of tenants’ existing space last year.
Those opportunities also appeared limited, based on a reading of data provided for the list.
Work by companies on this year’s list decreased by nearly 9% in volume from a year earlier with 12.7 million square feet of tenant improvement work completed here last year.
Pricing Up
The upside: Tenants—or landlords eager to keep those tenants in their buildings—were willing to pay a little more to get work done last year.
The average tenant improvement project here cost close to $35 per square foot last year, according to data provided to the Business Journal. That’s roughly $2.50 per square foot more than a year earlier, an increase of about 8%.
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.
Improvements to large retail spaces, such as a fitness center, can cost $60 per square foot or more.
For the best office space in OC, tenants can expect to get allowances from $35 per square foot to $55 per square foot from their landlords to redesign leased space, depending on the amount of space they’re leasing, according to recent market data from the Irvine office of tenant brokerage Studley Inc.
KPRS No. 1
KPRS Construction Services Inc. retained the top spot in this week’s list, with $60.9 million in tenant improvement business last year. The company, which has held the top spot on the list for three years running, reported working on close to 1.4 million square feet of projects here last year.
KPRS has counted some of OC’s largest businesses as clients in recent years, including Broadcom Corp., Beckman Coulter Inc., Irvine Co. and Edwards Lifesciences Corp.
For Edwards, KPRS last year completed upgrades to a 40,000-square-foot community center building at the company’s headquarters campus, which included a new lobby, office and cubicle renovations, and a new gym center.
Rounding out the top five on this week’s list were the local offices of Los Angeles-based Howard Building Corp., San Francisco-based Swinerton Builders, Long Beach-based Turelk Inc. and Snyder Langston in Irvine.
The top five companies on the list represented nearly 58% of the TI work reported on this week’s list.
No. 3 Swinerton posted the largest jump in TI work of any company on this week’s list, posting an 88% gain to $53 million last year.
Swinerton—in addition to working on a variety of healthcare-related TI projects in the area—reported helping in the expansion oxf Cinépolis Luxury Cinemas, an off-shoot of Latin America’s largest movie theater operator.
Cinépolis recently opened its first OC location, at Shea Properties’ Ocean Ranch Village center in Laguna Niguel. A second location for the upscale theater chain is slated for Rancho Santa Margarita.
No. 5 Snyder Langston also posted a sizable gain in TI work last year—41%—to $38 million. Recent projects for the company include 36,000 square feet of upgrades for Pacific Life Insurance Co., and the ongoing conversion of a former Boeing Co. facility in Anaheim into a new campus for Eastside Christian Church.
Download the 2012 OC’s LARGEST TENANT IMPROVEMENT CONTRACTORS list (pdf)
