Office Tenants Stay for the View

NEWPORT BEACH, CA-The real estate may not be cutting edge, but office tenants are reluctant to leave their pricy Newport Center Dr. addresses in search of newer space—and have been this way for years. Two of the reasons are the chic address and the spectacular views, Jason Lantgen, VP at Jones Lang LaSalle, tells GlobeSt.com.

As GlobeSt.com reported last week, Newport Center Dr. ranks 10^th on the list of most-expensive streets for renting office space in the country, according to JLL. The average monthly rental rate for office space on that street is $50.06, the firm reports.

Throughout the downturn, office vacancy on Newport Center Dr. was not nearly as impacted as other Orange County submarkets, says Lantgen. “Businesses there didn't feel the pinch enough to relocate out of the area.”

The current quality of Newport Center Dr. office space is older, low-rise buildings typically constructed between 1985 and 2000 and having smaller floor plates (roughly 15,000 to 18,000 square feet on average) than buildings in the Airport area or product being developed more recently, says Lantgen. Due to the lack of new office construction, the tenant base there has been contending for some time with 95% to 98% occupancy in the area and, even if they so choose, couldn't find space to relocate to; however, with the new Irvine Co. and Pimco office buildings in development, this may change. “This is the first time in a long time where new product is being put to the market.”

Nevertheless, tenants at this tony address are also remaining in place because the location is close to the residences of many executives from these firms, says Lantgen. “The amenities are tremendous, as are the ocean views. Fashion Island has everything you could want in terms of dining and shopping, and it's close to where a lot of the decision-makers live. There's a lot of draw to being there—you're isolated and have a captive audience.”

Just 10 minutes' drive outside of Newport Center Dr., where the closest office buildings are located, rents begin to drop off dramatically, by as much as 50%, says Lantgen. “You're basically in the Airport area. Rental rates there are $25 to $26 on an annual basis for A product, then it goes up.”

As GlobeSt.com has reported, there are pockets of office rental growth in other areas of Orange County, and Lantgen says these areas include the Irvine Spectrum and Aliso Viejo, which have seen a “tremendous amount of activity over the last 18 months.”