Jeff Ingham, senior managing director, JLL | Courtesy JLL

Why So Many Large Blocks of OC Office Space Available?

Carrie Rossenfeld Office

According to a recent report from JLL, there are 60 blocks of available space of at least 50,000 square feet in Orange County, with 35 of those blocks being in the Airport Area. SoCal Real Estate spoke with Jeff Ingham, senior managing director of JLL, to find out whether this occurrence is unusual, what the spaces have in common and the types of tenants being sought for this space.

SoCal Real Estate: Is it unusual to have this many large blocks of office space available in this market?
Ingham: It is somewhat unusual, and it’s a recent trend. It’s not all bad – in fact, in my opinion, it’s putting us into a balanced market. We could have gotten too heady and steamed, but we’re taking a step back, and it’s probably a healthy step.

What market dynamics are at play to cause this?
A few things that have happened. The big picture in the Airport Area is that the submarket dropped more than a million square feet in the last five quarters, so there’s been an unusual amount of negative absorption due to more deliveries, and vacancy is up. Also, a lot of older product has been renovated – hundreds of millions of dollars have been invested in this product over the last several years, either converting class-B space to class-A space or polishing up buildings that were built in the ’80s that have lost their luster. This has created a great opportunity for us, and that’s where those large blocks of space are coming back.

In addition, companies are not necessarily leaving OC, but a lot of companies are downsizing because they’re becoming a lot smarter with space than they were before. They’re tracking how many people are actually in the office using the space, since a lot of people work from home. There’s a whole trend happening of people looking at alternative workplaces, which is kicking in with technology. That’s a lot of the reason why the space is coming back.

While there are companies like Yahoo calling workers back to the office, many companies are looking at the percentage of their workforce who can work from home, reasoning, “Maybe I can get 25 percent of my workforce out of the office.” They’re much more accepting of that and how it works to attract and retain talent.

Also, a lot of companies are moving into other areas of Orange County where large blocks of space are available, like Broadcom moving to South OC from the Airport Area with its relocation, Cylance moving from the Airport Area to Irvine Spectrum, Deloitte downsizing at South Coast Plaza, Nationstar Mortgage moving from the Airport Area to Santa Ana, and Behr Paint moving from the Airport area to Central OC. Some companies are consolidating into corporate campuses from leased spaces. These moves haven’t hit the numbers yet, but they will, and those are the big-picture things happening.

It’s not all bad. A lot of companies are still expanding, and employment is great. We’re just getting more in balance so rates won’t spike up as high as people may have thought they would. There may be a little softening in pricing, which is a natural supply-and-demand reaction and overall a healthy thing for us from a local-economy perspective.

What do the available blocks have in common?
The Met had a lot of money put into it. Wamu previously occupied the space, and now it’s getting rebranded. There’s another project called elevate, and there’s the new L.A. Times site. These are providing all the things companies are looking for: food options, a conference center, outdoor space, and activated people space. They’re taking space that’s just there — for example, Intersect has a big pond in the middle, a water feature, and they’re taking it out and making it a beer garden where they’re having weddings. They’re utilizing space that was otherwise just a design feature, ornamental, or landscaping and making it so people want to be outside instead of stuck in their office. Boardwalk is doing this as well.

To what types of tenants are these spaces being marketed?
Highrise buildings are still attracting more traditional users, and campus-style – depending on how edgy it is – tends to lean toward non-corporate and creative tenants. But corporate tenants are still looking at space they wouldn’t have before with those types of features. It’s all about health, fitness centers, cost savings, a boardroom that seats 60 people. Part of it is financial, and part of it is just using space in a smarter way.