OC Office Poised for Construction Deliveries

IRVINE, CA-Several large office-building projects in Orange County are slated for completion in early to mid-2014, and spec building is also happening, Jones Lang LaSalle's SVP Jay Nugent tells GlobeSt.com. Among the large deliveries scheduled for early to mid-2014 are Hyundai's 469,000-square-foot North American headquarters in Fountain Valley, PIMCO's 380,000-square-foot headquarters at 650 Newport Center Dr., a 300,000-square-foot office tower at 520 Newport Center Dr. and the 110,000-square-foot Google project at 19510 Jamboree. GlobeSt.com spoke with Nugent about the office-construction environment, his predictions for the coming year and how landlords are embracing creative space in Orange County.

GlobeSt.com: With leasing velocity slowing, why is construction ramping up?

Nugent: It's a combination of what was in the pipeline being delivered and a few build-to-suit and spec projects. The Newport Center spec tower is the first spec office building that's gone up in a long time. Also, the Irvine Co. is planning to go spec on a tower in the Irvine Spectrum that they're looking to commence construction on this year and potentially deliver by the end of 2015. So, you are seeing new construction in certain pockets that are tight in vacancy like the Irvine Spectrum and Newport Center. I think it will be a while before you see construction in the Airport and other adjoining markets. You're seeing construction in the best-performing markets in Orange County. One way to look at it is that we've absorbed 75% of the 7 million square feet we lost in occupancy when the market crashed. Over the last 16 quarters, we've gained most of that back; we've had positive absorption in 15 out of the last 16 quarters.”

GlobeSt.com: What are your office-market predictions for Orange County this year?

Nugent: I think you're going to see rents continue to appreciate in class-A space. Premium space will continue to appreciate. The Irvine Co. is going to be a leader in that—they've already started pushing rents in their top products. One of the challenges we see is a lot of the large-tenant demand has waned because a lot of the large tenants in the market have signed in the last 24 months. But buildings that are over 85% to 90% leased will push rents. I recently heard that Boost Mobile is moving its headquarters from Hollywood down to Orange County. We're seeing a lot of demand from tech companies, and they're recognizing that, although it might be a little cost-prohibitive or not the most business-friendly environment in the country, the quality of life and the intellectual talent pool here can help serve their business.

GlobeSt.com: Now that creative space has caught on in much of the office sector, what are Orange County landlords and developers doing to remain competitive among each other?

Nugent: I think they're still trying to figure it out. A lot of landlords are talking about building creative, but only a few are actually constructing it. I think speed to market is going to be critical in that, but there's still a lack of supply, so the quicker you bring it to market, the better you'll perform. Landlords are still trying to get their arms around it and trying to find ways to meet the demands. One way is to introduce some creative elements, but not full creative elements, and to try to capture not just tech companies, but also traditional users looking for more creative/functional office. It's what we call “creative light” because we are what we are, and we Orange County people like a lot of the elements of creative space but aren't necessarily ready to move to a full creative environment that you might find in the Bay Area or New York City. The thing with creative space is everyone thinks it's a look and a feel, but the reality is it's how you utilize the office space. Landlords are still in the process of how to meet that demand, and they will do that over the next 12 months as they go build it.