Orange County’s newest city isn’t so new anymore, least of all its office market.
Aliso Viejo became the county’s 34th city after incorporating in 2001, and over that time the area has become a haven for technology, medical, insurance and other sizeable companies looking for space close to the coast in South OC.
Notable tenants include Pacific Life, Lennar Corp., Telogis Inc., Safeco Insurance and Microsemi Corp.
Last year the city had roughly 3.1 million square feet of leasable office space, the second most of any market in South OC after the Irvine Spectrum.
The Spectrum continues to bring product to market, with a variety of projects under way, but don’t expect Aliso Viejo’s supply of office inventory to expand by much more.
“It’s a mature market now,” said Greg Puccinelli, senior managing director of the Newport Beach office of Newmark Grubb Knight Frank. “It’s just about built out.”
Summit, Vantis
The city’s last two big office development sites, Parker Properties’ Summit office campus and Shea Properties’ Vantis development, are scheduled to be wrapped up this year.
Work at the Summit is under way at a 205,479-square-foot office at the intersection of Aliso Viejo Parkway and Enterprise Drive that will hold the headquarters of MicroVention Inc., a developer, manufacturer and marketer of neuroendovascular technologies.
The Aliso Viejo-based developer will move its base from Tustin to Aliso Viejo over the summer. Construction is scheduled to be finished at the four-story building in late May, according to Managing Director Russ Parker.
The MicroVention office is the third and last build-to-suit project that Parker Properties has taken on at the Summit following deals with PacLife and QLogic Corp. It’s also built a number of for-lease office properties that are largely owned by institutional investors that include RREEF Alternative Investments and Invesco.
The Summit has a little more than 1.8 million square feet of office space, in addition to the Renaissance Hotel and Club Sport. Parker estimates the buildings’ cumulative value at close to $800 million.
“We’re trying to wrap things up right now” at the campus with the MicroVention project, he said.
Likewise, Aliso Viejo-based Shea Properties is nearing completion of its own big mixed-use campus in the city, Vantis, a nearly 40-acre site near Aliso Viejo Town Center.
The commercial real estate development arm of Walnut-based J.F. Shea Co. at one point envisioned nearly 1.5 million square feet of office space there, but over the years it incorporated housing and other uses while scaling back office development to just a few buildings.
The change in plans is evident at the roughly 10-acre site that holds the last phase of development at Vantis. Last year a 129-unit Homewood Suites hotel opened on part of the land, along with the first phase of a rental project called Vantis Apartments. The latter, built by Shea Properties’ apartments division, will total 435 units upon its completion in late March. More than 100 units are built and being rented.
“We see Vantis as one of the best recent examples of suburban mixed use,” said Greg Anderson, senior vice president of multifamily development and acquisitions at Shea Properties, in a statement. “The existing attached, single-family homes and the City Walk live-work units were a huge success and added support retail to the community.”
He added that, “Our two class A office buildings are well-leased, and with the addition of the Homewood Suites last year and the new Vantis Apartments this year, we’ve managed to create an environment like few others in South County.”
Medical Campus
One large ground-up development site remains in the city, a 25.6-acre parcel on Liberty Road near Aliso Viejo Town Center.
Newport Beach-based CT Realty Investors bought the land early last year and set out to turn a site once eyed for a large postal facility into a healthcare campus. The development will be a mix of medical office buildings, a behavioral health facility, senior housing facility, and other uses.
CT Realty executives said the project’s estimated cost is about $250 million and that the first batch of buildings will open late this year.
The company has been selling sections of land to other developers and operators. Companies committed to the project include Kaiser Permanente, Signature Healthcare Services in Corona, Belmont Village Senior Living in Houston, and Roseville-based USA Properties Fund.
About five acres were still being marketed late last year, with plans for four smaller medical office buildings.
The lack of plans for additional conventional office space in Aliso Viejo was a big draw for John Drachman, founder of Irvine-based Stillwater Investment Group.
Ground-up development is “pretty much all done now,” he said. “It’s an infill market in many ways. That’s the first time you could really say that, and it’s one of the things that attracted us to the city.”
Stillwater in December partnered with CrossHarbor Capital Partners in Boston to buy the 12-acre QLogic campus on Aliso Viejo Parkway in what was its first big OC investment after kicking off operations in 2014.
The three-building, 161,000-square-foot campus includes about 2.5 acres of excess land that could hold additional development.
$36M
The Stillwater-CrossHarbor venture paid about $36 million for the property, which QLogic will vacate in the third quarter. The networking products maker, now part of San Jose-based Cavium Inc., will move to the Irvine Spectrum.
Drachman said the campus should be available to new tenants early next year, once significant building upgrades are done.
The new owners are also exploring development ideas for the excess land, which in theory could hold another 46,000-square-foot building.
The new owners, meanwhile, will embark on a branding campaign for the campus, which will hold the largest chunk of empty space in the city’s office market upon QLogic’s departure.
The office market in Aliso Viejo had an 8.5% vacancy rate at year-end, according to a sampling of brokerage data, under the roughly 10% vacancy rate in OC overall but slightly above the 8% vacancy rate in South OC’s office market, which totals about 24 million square feet.
The city’s no stranger to losing large office tenants. Companies such as construction and engineering giant Fluor Corp., Valeant Pharmaceuticals and Quest Software have either trimmed their sizeable local operations or left the market entirely, often after being acquired by out-of-town firms. Cavium acquired QLogic last August for nearly $1.4 billion.
Losing employers after big sales to nonlocal firms is due in part to Aliso Viejo’s tenant base, which traditionally has drawn “an atypical number of large tenants for a relatively small base (of buildings),” said Newmark Grubb Knight Frank’s Puccinelli.
The city has plenty to offer companies looking to fill that empty space. Its proximity to coastal cities where executives often live and to housing developments being built in South OC, often gives Aliso Viejo an edge in landing larger tenants compared to buildings closer to the airport, Puccinelli said.
Rents in the city, which often have been more affordable than those in the airport area and the Irvine Spectrum, have also been a draw, he said.
Average monthly asking office rents are $3.20 per square foot, compared to $3.30 per square foot for class A space in the airport area, according to year-end brokerage data.
