NEWPORT BEACH, CA—From live/work/play mixed-use that include retail, office and apartments to vertical residential, Orange County developers are getting smarter about efficient land use, Commercial Realty Specialists' managing partner Randy Mason, SIOR, tells GlobeSt.com. We spoke with Mason about current Orange County real estate trends, new asset classes that are gaining ground in the region and new tenant types entering the market.

GlobeSt.com: What are the overriding real estate trends you're noticing in the Orange County market?

Mason: We've been noticing that rents definitely have been increasing dramatically over the past year, One tenant's rent increased 25% to 30%—and this is a law firm whose rent increased in high-rise building. It's too much, and he can't raise his rates, so now he's looking at a lower-quality building. We're seeing a slowing of huge increases; it's still increasing, but not at 20% to 30% intervals. For brand-new buildings, rents need to be high because land and materials are expensive. When you start saying $4.50 per square foot, it raises the tide for all properties. Landlords are starting to offer $1-per-square-foot leasing incentives to brokers.

We're seeing creative space happening more here. Both buildings on either side of me in Newport Beach are now creative space—one was a traditional office building, which they didn't scrape but made creative office and it's beautiful; there's a game room in the lobby area and a lot of open space. It's more of a creative/collaborative feeling in the interior suites, with fewer private offices. We're seeing more village-like communities with regard to it being more like a live/work/shop type of location.

Orange County keeps getting denser and denser. Many projects are adding parking structures as opposed to surface parking and are becoming mixed-use complexes with hotel, condos and office space. If you didn't want to leave that complex, you wouldn't have to.

Also, people are talking about the fact that healthcare facilities are becoming more accessible. The patients are being embedded in retail locations; St. Joseph is doing some of that type of work. We're seeing also larger tenants are taking more of the alternative types of space with unassigned workspaces. A lot of employees are working from home or remotely or wherever they want to work and can come into the office when they need to and have an unassigned desk. If they a need private office for a breakout conference, there are smaller conference rooms and breakout areas.

And smaller tenants are utilizing and celebrating the break area. It's not a traditional breakroom, but pretty much off the reception area, and they keep the break area nice and neat with high-top counters and places where people congregate in the kitchen. You can make your food and bounce ideas off each other, visit and socialize. Cubes are definitely on the way out. They're using more open desks, and Millennials able to collaborate with each other by peering over their monitor versus reaching around the cubicle partition. To mitigate noise, on their phones they have background white noise and they're using higher-rated noise-insulation ceiling tiles.

GlobeSt.com: What new asset classes are investors eyeing in an attempt to diversify and take advantage of opportunities in the OC market?

Mason: We're seeing abandoned retail stores that are being turned into offices or larger retail boxes that are closing down because of e-commerce being reconverted into something else—office or creative. There's a lot of redevelopment of old and obsolete office buildings that are still in a great location, but the buildings themselves are old and obsolete; developers make creative-office buildings out of them. By redeveloping the obsolete, you're creating some risk, hoping for a greater return.

We're also seeing larger industrial buildings turning into apartments. Depending on the size of the project and location, the industrial vacancy rate is between 1% and 5%, which is pretty scary because what's available might not fit a tenant's actual needs. By removing a lot of this industrial for higher and better use (residential), we're now increasing pricing for existing available product that's on line.

GlobeSt.com: What new types of tenants are seeking space in this market?

Mason: One new type of tenant is the pot shops; that hasn't been legal before now. Other than that, new types of tenants taking space are work-sharing models of small individual tenants and/or companies sharing larger space, including community space like open-area kitchens, and having it feel more like a community. They're not in their own executive suite, but in a larger, open-area type of environment with couches and Wi-Fi; you can pick up your laptop and do what you need to do whenever and wherever you need to do it. Also, medical-device companies are still here, which is an area that is growing as well.

GlobeSt.com: What else should our readers know about the OC market?

Mason: Orange County is considered an unbelievable value compared to other markets. Investors say they can't believe how inexpensive our rents are considering what you're getting and where you're located. Things are getting more expensive—real estate is expensive on the residential side—but Orange County is still one of the best places to work in the nation because of the quality of life, should you actually engage in quality-of-life opportunities like evening bike-ride opportunities or taking your dog to Dog Beach—the dog is getting exercise and you're enjoying the sunset. People are working more, but it feels like your quality of life is actually better, and you can serve clients better and at off hours.

We are more open to embracing new and obscure retail concepts, like boutique-type restaurants and semi fast food. You may never have seen that type of sushi or sandwich here, but now we have hot new restaurants and cool boutique-type stores like Bonobos.

Also, the fact that our retail as well as office settings have covered outdoor collaborative areas means you can have meetings outside and go for a walk during the day to discuss what needs to be discussed. We have great retail down in Lido in Newport Beach and hip shops that are outdoor related. There's an emphasis on staying healthy, which is also in the restaurants.

We're seeing more vertical going up for housing; the cities are becoming more accepting of that. Mixed-use with retail on the bottom, office in the middle and housing on top is growing in popularity; you can live, work and play in the same location so you don't have to get into your car. The challenge here is still traffic, which keeps getting worse and won't be getting any better.

GlobeSt.com: What are the overriding real estate trends you're noticing in the Orange County market?

GlobeSt.com: What new asset classes are investors eyeing in an attempt to diversify and take advantage of opportunities in the OC market?

GlobeSt.com: What new types of tenants are seeking space in this market?

GlobeSt.com: What else should our readers know about the OC market?

Instant Insights /

OC is Getting Denser and Denser

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