Central County’s lower asking rental rates for office space, while rising, are still a bargain compared to the Irvine Spectrum and Airport Area submarkets, according to JLL research. | Images courtesy a representative of JLL

Pros and Cons of Renting Office Space in Central OC

Carrie Rossenfeld Office

As OC office submarkets go, many office users wouldn’t think of locating in Central Orange County before the Airport Area or Irvine Spectrum. But this is changing, as recent fundamentals have shown.

JLL recently reported that despite year-to-date negative net absorption, Central County has seen its fair share of large leases in 2018, led by the government sector. Large leases include the U.S. Government leasing 66,818 square feet in Tustin, County of Orange leasing 61,002 square feet in Garden Grove and 59,927 square feet in Orange, and CNI College leasing 52,095 square feet in Santa Ana.

JLL also says that Central County is experiencing rent growth, but it is still an affordable option for tenants, with average asking office rents in Central County at 21 percent less than the overall Orange County market average.

SoCal Real Estate spoke with Scott Wetzel, a VP in JLL’s Irvine, California, office, about the pros and cons of renting office space in Central Orange County and how landlords are attracting tenants to this submarket.

Scott Wetzel

SoCal Real Estate:From the occupier’s perspective, what are the pros of renting office space in Central Orange County?
Wetzel:
Historically, the two key attracting features for Central County office tenants have been rent and labor. Current asking rates are $2.76 full-service gross and $2.16 full-service gross for class-A and -B, respectively. Compared to $3.40 full-service gross and $2.99 full-service gross for the Airport Area, this offers enough of a rent differential to attract cost-conscious tenants. Additionally, because of the superior access to L.A. County and Inland Empire labor pools, Central County is often seen as a well-located option compared to more expensive submarkets to the south, e.g., the Airport Area and Irvine Spectrum.

Additional pros are:
• ARTIC, and public transportation in general, which allows for alternative transit options;
• Higher parking ratios: many properties either have more space, street parking or reciprocal parking agreements, which allows for tenants to densify their workspace and further capitalize on the benefits of lower-cost work space.

What are the cons?
The “Orange Crush” is real. While being centrally-located is a plus, it’s not without some downside. The convergence of the 5, 57, and 22 freeways can be nightmarish during rush hour, but to be perfectly blunt, you can’t name a city in Southern California that doesn’t have that same problem.

The submarket as whole is also less amenitized than its counterparts to the south. While this is improving with multifamily and retail development, these improvements are a few years behind areas like Irvine and Newport Beach. As tenants and businesses alike both clamor for increased amenities, Central County landlords will be wise to reposition their assets to meet these demands.

And lastly, the homeless. After a federal judge ruled to remove several hundred people from the homeless encampments lining the riverbed, it simultaneously cleaned up the immediate area, while also scattering homeless across the county as they search for new places to stay. Homelessness in Southern California will continue to be an issue until the public and private sector can determine a housing solution.

What are landlords in this submarket doing to attract tenants?
AXIS, in my opinion, is a sparkling example of how repositioned office space can succeed in what has traditionally been seen as a “back-office” or non-creative submarket. Lincoln Property Company has illustrated that these types of amenities are not strictly limited to the tech sector. Bentall Kennedy’s Arena Corporate Center project is also undergoing renovations, by adding a fitness center and improving the culinary experience on site. As unemployment continues to move beyond “full employment,” the concept of amenitization has been democratized.

What else should our readers know about this market?
Central County’s biggest competition is not another OC submarket, but rather business-friendly states like Utah, Arizona and Texas where these types of high-density offices have abundant land for free, surface parking, and an ample English-speaking and bilingual labor force. Multifamily development continues to lead the densification trend in Central County, but retail and office will eventually follow as the residential build-up reaches critical mass.