BREA, CA-The office market in Orange County istightening to the point where not only class-A space is hard tofind, but class-B vacancy is also plummeting in some areas.Scott Meserve, EVP of the KollCo., tells GlobeSt.com that in Brea, class-B vacancy ratesshould be entering the single digits shortly.

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As GlobeSt.com reported earlier this week, theKoll Co. hassigned the IMS Co., which was recently acquired byZodiac Aerospace of France, to what is beinghailed as the largest office-lease deal in Orange County so farthis quarter. IMS has taken 81,077 square feet of space at2929 Imperial here, bringing the two-story,121,153-square-foot office park to full occupancy;the long-term lease is valued in excess of $11 million.

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“Statistically, and if you also just ask people, everyone saysthe office market is getting better,” says Meserve. “Class-B spaceis starting to fill up, particularly if you're in a location thatattracts corporate America.”

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Meserve says his firm targeted 2929 Imperial because the Breamarket is largely made up of back-office, class-B users,particularly banks and insurance companies. “It worked very wellfor us. The tenant originally came from our own building that wassold and recapitalized, and they expanded rather rapidly.”

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Meserve points out that in the northern part of Orange County,class-B space is faring better than class-A space due to theownership nature of these sectors. However, he is hesitant to saythat the tight vacancies may spur officedevelopment. “I don't know. There are landconstraints in Brea, where land is targeted towardindustrial or multifamily. Therates are still not there. While vacancy has gone down, the ratesaren't up yet.”

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Jeff Ingham, senior managing director ofJones Lang LaSalle, agrees, saying that recoveryhas not hit the speculative development stage yet. “With vacancyrates hovering in the mid-teens across Orange County, speculativedevelopment is still an afterthought for most area developers,” hetells GlobeSt.com. “Build-to-suits and the IrvineCo., the area's largest landlord, are the only playerstruly active with office-development projects.”

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As Ingham recently told GlobeSt.com, the largestbuild-to-suit projects for companies that are the most notablycutting edge in their industry include PIMCO,Hyundai and Google. “Currently,there are only two submarkets that are anticipated to see near-termspeculative development: Irvine Spectrum, wherethere are single-digit vacancies in the high-rise market, andFashion Island, the submarket achieving thehighest office rents given its ocean views, proximity to executivehousing and abundance of amenities. Both submarkets are controlledby the Irvine Co., providing for a very low land basis for thedeveloper with limited competition.”

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Within Irvine Spectrum, it is rumored that the Irvine Co. istoying with the idea of constructing another class-A tower giventhe mixed-use area's recent success, Ingham adds. “The tower isanticipated to be similar to the prominent 20 and40 Pacifica buildings located at IrvineCenter Dr. and the 405 freeway.”
Within Fashion Island, the Irvine Co. has broken ground on a20-story high-rise adjacent to its headquarters, says Ingham. Theproject is expected to be completed in fourth-quarter 2014, and theIrvine Co. has not officially marketed the building, nor have theycreated marketing materials, as it is anticipated that they make aportion of the building for their own use.

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Carrie Rossenfeld

Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.