Business not flying to airport-area locations

Paul Clinton

Vacancy rates for office and industrial space in Orange County

have hit a five-year high, a wrong-way trend that has seen corporate

tenants walk away from buildings near John Wayne Airport at what

experts call an alarming rate.

As of Oct. 1, 48% of Orange County’s vacant office space sits in

the Airport District, which includes sections of Costa Mesa, Newport

Beach and Irvine, a commercial real estate firm reported.

During the third quarter, Orange County’s office and industrial

vacancies rose to 7%, according to a Nov. 19 report from Newport

Beach-based DAUM Commercial Real Estate Services.

The Airport District’s 8.3% vacancy rate came in second highest in

the county to South County’s 10.8%.

The report cited “sluggish demand,” saying many companies have

left the higher rents and newer buildings in Newport Beach and Irvine

for cheaper buildings in Santa Ana and Anaheim.

“The average client in today’s market is looking to go to areas

with low market rates,” said Ken Hulbert, an executive vice president

at DAUM. “It’s a flight away from higher costs.”

Costa Mesa is still smarting from the loss of Canon Inc. and the

company’s 300 local jobs. In March, the company announced it was

pulling out of its 284,000-square-foot manufacturing plant near the

airport at Red Hill Avenue and Pullman Street.

The company manufactured inkjet printers at the six-building

complex, which is now vacant. Canon secured approval from the

Planning Commission to subdivide the land, so it would be easier to

sell.

Rents in the airport zone run between $2.25 and $2.80 per square

foot, Hulbert said. Those are only asking rates, however, and have

often not held. Landlords have been offering inducements to companies

to rent space, Hulbert said.

These include free rent, concessions on parking fees and

additional building improvements with a signed lease.

Despite the glum news about the area’s commercial real estate

market, several large office complexes have filled vacancies in

recent months.

In Newport Beach, the MacArthur Court offices, at MacArthur

Boulevard and Jamboree Road, signed a lease earlier this year for its

vacant first floor.

Landlord Shea Properties, with the help of agent Grubb & Ellis

Co., worked a deal with Orange County Business Bank to fill the

space.

Another sizable office property left the open market in June, when

the Orange County Board of Education closed escrow on the

six-building Esplanade business park in Costa Mesa.

The county agency purchased the 145,667-square-foot airport

district complex, at 3001 Red Hill Ave., for $15.99 million.

“It is intended for long-term use for the department for future

growth and consolidation of various operational facilities,”

associate superintendent John Nelson said.

None of the approximately 80 tenants at the complex will be

relocated, Nelson said. However, the agency plans to use the

buildings, which border its current headquarters, for future

expansion.

In contrast to the report, Irvine Co. officials said demand has

been strong for their office complexes, including the University

Research Center on the UC Irvine campus.

Tech bellwether Cisco Systems and Canon Inc. hold leases in the

1.5-million-square-foot complex, a university spokeswoman said. The

Irvine Co. handles leasing for the space.

“We’re really been pleased with the level of interest in our

buildings in spite of the challenging market conditions,” spokeswoman

Jennifer Hieger said. “Tenants do have a lot of choices, but they

continue to seek us out.”

* PAUL CLINTON covers the environment, business and politics. He

may be reached at (949) 764-4330 or by e-mail at

[email protected].