NEWPORT BEACH, CA—Creative deal making and the ability to reposition obsolete real estate are necessary elements for office buyers entering the highly competitive Orange County marketplace, Savills Studley managing director Brad Schmitt tells GlobeSt.com. With rises in leasing activity and asking rental rates and a decrease in availability from the previous quarter, according to a recent report from the firm, we spoke with Schmitt about what office investors and tenants are seeking in this market and how tenants are navigating the current landlord market.

GlobeSt.com: What are office investors looking for in Orange County?

Schmitt: Investors continue to seek yield in Orange County. It is getting much more challenging for investors, in particular value-add investors, to find opportunities that make sense given the current office valuations and pricing in the marketplace. Creative deal-making and the ability to reposition obsolete real estate are must have attributes for investors in Orange County. Although viewed as a suburban market, investor demand remains high for well-located Orange County office product since investors are attracted by the market fundamentals and the lower pricing compared to West L.A. and Playa Vista. As a result, we have seen new players emerge in this cycle, including Swift Real Estate Partners, Hilrod, Cruzan and Monday Properties.

GlobeSt.com: What about tenants?

Schmitt: Tenants in Orange County continue to seek spaces that are flexible and highly efficient that will energize and inspire their workforce. In the past, companies used to be able to get by with vanilla office space. However, in today's competitive corporate environment amid the war for talent, smart companies have realized that having attractive space that promotes collaboration and creativity is no longer a “nice to have” but a “must have.” We are finding that if a company has not refreshed or re-worked their space in the last six to 10 years, it is at a competitive disadvantage and is not able to attract the workforce it seeks and requires.

GlobeSt.com: How are tenants navigating the current landlord market?

Schmitt: In most cases, tenants are having to face the reality that the Orange County marketplace has tightened considerably since the tenant-friendly cycle of 2010-2014. Whether considering sublease space, shorter lease terms or alternative submarkets, tenants need to be creative in uncovering opportunities while critically examining their real estate footprint to determine their needs. Now more than ever, tenants need a strategic real estate plan as they enter and navigate the current competitive marketplace.

GlobeSt.com: What do you expect to see in the OC office market for 2018?

Schmitt: Barring any unforeseen geopolitical or worldwide economic crisis, I expect to see the current landlord's market continue its push into 2018. I anticipate seeing modest rent growth in the Greater Airport Area, the Irvine Spectrum, and Central Orange County markets with concessions tightening. Notwithstanding the foregoing, I expect to see a drop in rental rates in formerly tight markets such as Aliso Viejo, where large blocks of space will be hitting the marketplace in 2018. Tenants seeking value are going to continue to be forced to look into tertiary markets such as Cypress, La Palma and south of the Irvine Spectrum in South Orange County.

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