Employers throughout Orange County continue to seek ways to attract and retain the best and brightest talent as unemployment dropped to 2.4 percent in the second quarter, below both the California and U.S. rates. That, in turn, has resulted in landlords reinvesting in their properties, providing creative and flexible work spaces, and offering a variety of onsite amenities and service that help companies fulfill that goal.
Landlords continue to seek out creative competitive advantages by improving the actual employee experience within the workplace. This often results in amenities like gyms, fitness classes, outdoor work areas, restaurants and collaborative open spaces. Add to that complimentary concierge and personal services, dog-friendly campuses, onsite hosted events and entertainment opportunities and it’s evident to see that property owners are stepping up their tenant services game, thereby enhancing employee innovation and productivity in the workplace.
Jennifer Whittington, CBRE
With all that in mind, three new office projects completed construction in the second quarter. FLIGHT at Tustin Legacy added 457,217 square feet of unique, creative office space with 26 percent already pre-leased. The major warehouse-to-office conversion project at 2722 Michelson was delivered fully leased to Anduril, an aerospace defense firm, which subsequently subleased 47,733 square feet to advertising technology company Viant Technology. Discovery Park, a three-building, 290,400-square-foot mid-rise campus in the Irvine Spectrum submarket, was completed and is expected to lease quickly as well. Additional new creative office construction is underway, mostly in the Irvine Spectrum submarket.
Flexible space solutions are also shaping the Orange County office market. They are becoming viable options for all company types, whether an underserved small tenant or a large corporation with fluctuating space needs. Flex office space leasing in the OC is expected to increase during the second half of this year with two operators currently planning to inhabit five new locations in the area.
As leases expire in this dynamic market, tenants are tasked with analyzing a variety of factors that relate to their office space needs and decisions for the future. Improved technology, optimization of floorplans and flex work programs logically reduce the physical office footprint. Couple this with rising construction and relocation costs, which likely require a tenant and landlord to lock down a long-term lease, and coworking spaces present a new, viable option for companies that want to maintain ultimate flexibility with their office space.
The OC’s flex space footprint, which is most heavily concentrated in the greater airport area, climbed to 1.5 million square feet in the second quarter. This is up from 322,000 square feet one year ago, and accounts for 1.4 percent of the region’s total office space. While the footprint as a percentage of total office space is still relatively small, flex space is one of the fastest-growing market segments in the area.
The office market is tightening, despite the delivery of new product and a rising average asking lease rate. The remainder of the year is shaping up to show strong activity and positive net absorption, with average asking lease rates expected to increase as landlords continue to invest capital into their buildings.
— By Jennifer Whittington, first vice president, CBRE. This article first appeared in the November 2019 issue of Western Real Estate Business magazine.