Tenants Prefer Conversion Office Projects

Redevelopment office projects are driving office leasing activity in Orange County. According to a new market report from JLL, office projects that have undergone significant renovations are capturing much of the leasing activity sparking a new adage of “if you reposition it, they will come.” While renovated space as a market segment has seen healthy leasing activity and rental rates, in the third quarter, office absorption was negative 381,719 square feet and vacancy rates remained flat at 13.9%.

“The non-traditional clients that we have, like technology and action sports, are looking for new amenitized properties,” Jeff Ingham, senior managing director at JLL, tells GlobeSt.com. “There are the more creative-style properties, which are focused on the low-rise, funky conversions, and on the more corporate side, users are looking at it from an amenity standpoint. They have food, conferencing, fitness—the whole gambit of amenities that go with the project. Those are more traditional office complexes that fit the corporate users.”

Mostly existing owners—especially institutional owners—are taking on the cost of these renovations, and it is paying off. Renovated office projects command 20% to 30% higher rents. In addition to renovated office product, there is also new construction product, which commands an 20% premium on rents as well. However, Ingham says that the two product types—renovated versus new construction—attract different users. “It is a different market, and it is really apples and oranges,” he says. “Some clients want to be in the new building and some want to be in the conversion projects. There is a big pricing difference between the new buildings, which are $4 per square foot and the conversion buildings, which are closer to $3 per square foot.”