Q2 2012 Orange County, California Office Submarket Trends

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Q2 2012 Orange County, California Office Submarket Trends

Note: The city of Irvine, a major focus of activity, is divided by Reis among three of the submarkets profiled below—Airport, Central, and South.


  • The greater John Wayne Airport area in Irvine, including the massive Irvine Spectrum business park, among others, has been the leader in Orange County office development over the years. With 37.4 million square feet of existing inventory, Reis’ Airport submarket is the county’s largest.
  • First half 2012 net absorption alongside no new supply was strong at 261,000 square feet, a sum equivalent to about two-thirds of the county total for the period. The submarket’s total for second quarter alone was 112,000 square feet.
  • “The majority of absorption,” reports Jones Lang Lasalle, “continues to be centralized in the Airport Area and South County submarkets with tenants like LA Fitness (expansion), Allergan (expansion) and Spireon (new) all taking occupancy in the past three months” for leases signed earlier.
  • Last year’s net absorption total was 412,000 square feet with no supply delivered, Reis reports.
  • Severe negative absorption during the period preceding, however, led to high vacancy rates.
  • Improvement has followed: vacancy ended the latest quarter at 19.9%, down 30 basis points for the period, down 120 year-over-year.
  • Small portions of the large rental losses that began in 2008 have been reclaimed since growth returned to rents in 2011.
  • At $29.34 psf and $21.45 psf, second quarter 2012 asking and effective averages were essentially unchanged for the quarter but were up 0.3% and 0.4% since year-end—following respective gains of 0.8% and 1.3% in 2011.
  • A $60 million, 20-story, 380,000-square-foot building 100.0% preleased to Pacific Investment Management Company (PIMCO) at 650 Newport Center Drive, Newport Beach, is expected to complete in January 2014. Construction began last December. The Irvine Company is the developer.
  • More. PIMCO’s move entails the evacuation of 192,000 square feet currently occupied nearby at Pacific Financial Plaza, 800 and 840 Newport Center Drive, also in Newport Beach and also an Irvine Company property.
  • No speculative projects are underway in this submarket. Topping the list of projects to have advanced to the planning phase, HCG Irvine at Michelson Drive and Teller Avenue in Irvine Business Complex consists of two phases with a combined total of 785,000 square feet in the pipeline. Hines is the developer. A construction schedule is not specified.
  • Jones Lang LaSalle has reported tightening fundamentals in Class A properties in the Airport and South County areas “led by technology and medical firms.”
  • Second quarter leases in the Airport submarket include an 88,160-square-foot Class A renewal by Mindspeed at 4000 MacArthur Boulevard, Newport Beach, according to industry sources.
  • Radha Soami Society Beas-America Corporation leased 34,000 square feet during the quarter at 1420 Reynolds Avenue, Irvine, Studley, Inc. reports.
  • A 30,000-square-foot deal was executed by Insight Investments at 611 Anton Boulevard, Costa Mesa, reports Jones Lang LaSalle.
  • National Water and Power signed a 30,000-square-foot lease at 535 Anton Boulevard, Costa Mesa, reports Studley, Inc.
  • Cushman & Wakefield reports a 27,000-square-foot Class B renewal by Intel at 111 Theory Drive, Irvine (within University Research Park).
  • Outlook. Absorption is expected to pick up over the remainder of the year; a total of about 600,000 square feet is expected for the year alongside no new supply deliveries. Vacancy is expected to close 2012 at 19.0%. Gains of 1.2% are forecast for both average rents for the year. 2013 should be a stronger year.


  • Reis’ 16.6-million-square-foot Central submarket includes the city of Anaheim, parts of Santa Ana and Irvine’s northern extremity.
  • Following a steep loss in 2010, net absorption, along with just 20,000 square feet of new supply ran at positive 285,000 square feet all told in 2011.
  • The total for the first half of 2012, with no new supply delivering, was zero. The second quarter total, exactly negating first quarter’s gain, was negative 16,000 square feet.
  • Vacancy closed the second quarter at 18.9%, up 10 basis points for the period, down 80 year-over-year.
  • Following large losses in 2009 and 2010, rents have stabilized.
  • At $23.03 psf and $17.39 psf, asking and effective averages for the second quarter were unchanged from the quarter before and were down 0.2% and 0.1% since year-end—following increases of 1.1% and 1.3%, respectively, last year.
  • The sole project under construction in this submarket per the date of this report was the 194,000-square-foot owner-occupied facility for Extron Electronics at 1047 S. East Street in Anaheim. Reis expects an October finish.
  • Projects in the pipeline include Caribou Industries’ (Michael Harrah) long-planned, controversial 37-story, 518,300-square-foot One Broadway Plaza at 10th and N. Broadway in Santa Ana.
  • Background. The oft-delayed building, a subject of a voter referendum, legal appeals to stop the project, and conflict over changes in the city’s preleasing requirement, has been moving closer to construction.
  • Update. Among the latest items: the developer had been attempting selling off two local properties to help fund development of the new tower, according to local sources. A deal to sell the Santora Arts Building fell through, however, The Orange County Register reported in June.
  • More. Harrah reported that 75.0% of One Broadway Plaza will be filled by “a major American Corporation,” Voice of OC reported in March. The June or July groundbreaking expected to follow as a result of the deal, however, did not occur.
  • A large lease. CashCall Inc. has leased 125,208 square feet on seven floors at the 19-story, 333,992-square-foot City Plaza property at Lampson Avenue and Lewis Street in the city of Orange, Business Wire reported in July. Staged occupancy is expected to begin this September.
  • More. The CashCall lease backfills “nearly 87,000 square feet of an expiring lease with Kondaur Capital Corporation,” adds the report. The new deal results in a “stabilized leased percentage” of 92.0%.
  • Platinum Triangle. No changes were reported by the city of Anaheim in its June 26, 2012 development update regarding planned office development at the 820-acre Platinum Triangle redevelopment area. A total of 14.3 million square feet of office development have been permitted; 309,419 have been approved all told for two projects—Platinum Gateway and Experience at Gene Autry.
  • The city of Tustin is seeking developers to build in Tustin Legacy, the massive mixed-use redevelopment of the former 820-acre Tustin Marine Corps base, after master developer Shea Properties backed out of the deal, citing the stalled real estate market. Infrastructure work (the extension of Tustin Ranch Road) got underway late last year. In June, the Irvine Company was selected to build a pair of apartment buildings. Tustin also is in negotiation with Irvine-based Broadcom Corporation over a possible new headquarters for the chip-maker.
  • Cushman & Wakefield reports a 36,184-square-foot second quarter new Class B space lease by Universal Electronics at 201 E. Sandpointe Avenue in Santa Ana.
  • Outlook. The return to positive net absorption over the second half of the year, forecast at 115,000 square feet, would shave 70 basis points from the vacancy rate. Rent growth at about 1.0% is expected for the year all told.
  • As the saga of One Broadway Plaza continues, the building may be creeping slowly toward its construction start. If built as planned, it would be the tallest office building in the county.

South County

  • Lake Forest, Foothill Ranch, Aliso Viejo, Rancho Santa Margarita, and part of the city of Irvine are included in the South submarket. Reis puts total existing inventory at 14.9 million square feet.
  • No standard competitive office space has delivered in South County since 358,000 square feet completed in 2008. Earlier activity was relatively heavy.
  • Total first half 2012 net absorption was 74,000 square feet following 313,000 all told in 2011. The total for second quarter 2012 alone positive 104,000 square feet.
  • As described below, several substantial leases and one substantial space evacuation recently took place.
  • Vacancy closed the latest quarter at 19.8%, down 70 basis points for the period, down 230 year-over-year.
  • Following two years of severe loss, growth returned to average rents in 2011.
  • At $27.56 psf and $20.72 psf, second quarter 2012 asking and effective averages were down 0.2% and 0.1% for the period but were up 1.0% and 1.2% since year end—following respective gains of 2.1% and 2.5% all told in 2011.
  • South County, along with the Airport submarket, is cited by Jones Lang LaSalle in a second quarter report as being a county leader in the absorption of office space.
  • Although planning remains substantial, no space was under construction per the date of this report with the exception of a 20,000-square-foot medical-office project in Aliso Viejo.
  • Prominent in the latest round of construction was the 40 Pacifica spec project at the Irvine Spectrum, which completed in 2008. The building has been at the center of recent activity.
  • Thus, a 207,000-square-foot block leased temporarily by FDIC at 40 Pacifica as a result of the financial-housing crisis was evacuated during first quarter.
  • More. Much of that space was quickly re-rented, however, as real estate research and data firm CoreLogic signed on for 169,287 square feet. Third quarter planned occupancy has been reported.
  • Still more. Amazon.com Company A2Z Development took 110,000 square feet at 40 Pacifica, the Register reported in April. “Landlord Irvine Company would only confirm that the building is now all but leased up.”
  • Second quarter South County leases reported by Studley, Inc. include an 85,000-square-foot deal by Printronix Inc. at 15345 Barranca Parkway, Irvine.
  • Metagenics leased 47,000 square feet during the quarter at 25 Enterprise Way, Aliso Viejo.
  • Outlook. The 60,000 square feet of positive net absorption projected for the second half of 2012 would lower the vacancy rate to 19.4% by year-end. Gains of 1.6% and 2.5% are projected for the mean asking and effective rents for the year. Additional improvement should follow in 2013.


  • The “leasing highlight of the quarter” was Mitsubishi Electric’s new deal for 48,971 square feet of Class B space at 5900 Katella Avenue in Cypress (in the West submarket), reports Cushman & Wakefield.
  • Studley, Inc. describes the deal as an example of the impact on the county office market of “support from companies linked to imports and exports.”
  • HUB City Terminals newly leased 31,000 square feet of Class B space during the second quarter at 3075 E. Imperial Highway in Brea (in the North submarket), according to industry sources.