OC Office Fundamentals and Trends for 2019

Carrie Rossenfeld Office

Recently renovated office buildings are capturing much of the leasing activity in this sector in Orange County, according to a recent Q3 office report from JLL, distributed by a representative of the firm. The report also says that the life-sciences sector has become an integral component of OC’s local economy, fueled by strong venture-capital investing.

In addition, the number of available office spaces 50,000 square feet and greater increased from 71 to 83 quarter-over-quarter due to The Irvine Company’s nine-building 1 million-square-foot Spectrum Terrace project, of which three buildings have begun construction, according to the report.

SoCal Real Estate spoke with Curtis Ellmore, SVP at JLL, about OC’s office fundamentals for 2019 and the trends he sees emerging in this market next year.

Curtis Ellmore | Courtesy a representative of JLL

SoCal Real Estate: What are your projections for the Orange County office market’s fundamentals in 2019?

Ellmore:I think for 2019, market fundamentals are going to be very consistent with how they have been in 2018. We saw moderate rent growth in 2018, depending on submarket, and we expect the same in 2019.

With so much focus on tenants doing more with less and owners spending record amounts on capex, how will these trends play out for office investors?

Owners are spending a lot of money on capex because they’re getting higher rents. When a building is receiving higher rents, investors will be paying higher price points for those projects because they’re getting more cashflow. As long as they’re available, value-add, conversions, and capex-intense projects will the set high-water mark for these rents. Also, high rent attracts credit tenants. Investors will be core investors looking to acquire projects with good-credit tenants at a higher price point.

What new office-market trends do you see emerging and growing next year?

One new trend in office is that premier projects are becoming hospitality suites. The trend now is for an office project to be all-inclusive with hotels, retail, apartments — basically a full hospitality suite. That is the way we’re seeing the future of new developments in the pipeline nationally. Nightlife amenities (hotels, restaurants, entertainment, etc.) — that’s where we see office heading. These are in and around the project so that employees could be there day or night.

How will Orange County’s office market fare compared to L.A., San Diego, and the Inland Empire over the next few years?

Orange County itself has some of the best live/work/play dynamics — likability, John Wayne Airport, the beaches, good schools — that are going to influence people to want to live here. L.A. is becoming incredibly dense, so Orange County is receiving the runoff from L.A. San Diego doesn’t have the size of Orange County, and the Inland Empire doesn’t have the beach. We see OC faring very well vs. neighboring cities; people want to live and be here.

What else should our readers know about Orange County’s office market?

There are some great opportunities out there. The market is tighter than in the past, but there are still great deals to be had for owners. The picture is still very rosy and optimistic.