By Mike Adams, Managing Director, Stream Realty Partners
This article first appeared in the Western Real Estate Business July 2022 edition
The state of office is transitioning to a desire for dynamic spaces. Tenants in the Orange County office market are gravitating toward assets that act and function like hotels. They are seeking out the newest buildings and the most unique office environments. This is evidenced through leasing activity being the strongest in the Irvine/Tustin Legacy and Irvine Spectrum submarkets.
Employers are looking for a reason to bring their workforce back to the office and are recruiting high-caliber employees. One way to do this is through office space. Creative office space is still in high demand, something that likely won’t change soon. Companies focused on employee retention want to create an “Instagram-worthy” type office environment. They are looking for office space that will create a buzz and that they can use as a recruiting tool.
Office buildings are unique assets that facilitate collaboration, culture, and training. This interest in new development signifies a flight to quality of office assets – both for landlords and tenants alike.
Several trends related to the desire for quality include:
- Hotelization: office spaces that act and function as hotels
- Biophilic design: the concept of connecting a building with nature
- Proptech: using innovative technology and software.
Office-to-industrial conversions also are a continued trend. There is nearly 1.4 million square feet of office-to-industrial conversions in the Orange County market, with the largest being the Amazon redevelopment at 275 Valencia Ave. in Brea.
Countywide, there are 17 office buildings under construction, composing nearly 1.3 million square feet. The Irvine Company accounts for 47% of the total development pipeline, largely in the Irvine Spectrum. Evidence of the demand here is Apple’s reported pre-leasing of a building in Spectrum Terrace’s latest phase. Beyond that, 1.2 million square feet were delivered over the past two years. That new product has leased well, currently at 84%.
There are also 1.3 million square feet of proposed projects that have yet to break ground. The largest of these is Merlone Geier Partners’ 465,000-square-foot The Village at Laguna Hills. The talk in South County is who will land the U.S. General Services Administration (GSA) tenants in the market as they start to unwind the 1-million-square-foot-plus Chet Holifield building in Laguna Niguel.
From a capital markets standpoint, Orange County office sales transactions over the past 12 months total more than $1.5 billion (in buildings with more than 75,000 square feet). This compares to just over $1 billion in the prior 12 months. The increase in transaction volume is largely due to strong activity in the third and fourth quarters of 2021, as well as a few major institutional deals.
Mike Adams serves as a Managing Director within Stream’s Transaction Specialist Group. During his 10-year career, he has completed over 400 transactions valued at more than $225,000,000, accounting for a total of 2,000,000 square feet. Mike was the top producer in the Greater Los Angeles office from 2010 to 2013 and 2015 to 2018. In 2018, he was the top producer in the Southern California region, completing 45 transactions in excess of 250,000 square feet, for a total value of $35 million.