GlobeSt.com: How will this market change going forward?

Jones: With limited new supply outside of the Boardwalk, which is planned for completion third quarter of 2017, and FLIGHT, which is anticipated to complete in 2018, the majority of the class-A office product was built in the mid- to late-1980s. We are seeing investors and operators looking for existing older product such as light industrial and excess corporate real estate that can be repositioned to creative or progressive office projects. The desire for traditional office space seems to have faded away. Investors are looking for product that will differentiate themselves from the typical mid- or high-rise product in the Greater Airport area and something that today's progressive tenant will want in order to retain and hire new talent. This isn't just occurring in low rise product. We have seen some mid- and high-rise product move toward more progressive space, while adding tenant amenities such as outdoor seating areas, Wi-Fi, fitness centers, and multiple food sources.

GlobeSt.com: Is the submarket's proximity to the airport the main reason it has become an office focal point for Orange County?

Jones: The submarket's proximity to John Wayne Airport is one of the major reasons it is considered the hub of the market. John Wayne continues to make improvements to the terminal, and is a very easy airport to get in and out of, with flights to and from all major hubs across the country. Furthermore, the proximity to executive housing along the coastal neighborhoods and easy access for the majority of the employees via the vast freeway network, make the Greater Airport area a logical office location. Cities within this submarket such as Newport Beach, Irvine and Costa Mesa have historically been attractive locations for major employers.

GlobeSt.com: What else should our readers know about the Airport submarket?

Jones: Similar to other West Coast office markets, opportunities to own high quality office product in the Greater Airport submarket are getting harder to find. Deals need to check all the boxes, and underwriting is more conservative, especially as it relates to rent growth and residual pricing. The “perfect” deals that check all the boxes are still making market and seeing strong pricing, but the majority of institutional office transactions have thinner buyer pools than we had in the first half of 2015.

NEWPORT BEACH, CA—In the second half of 2016, new buyers—both foreign and domestic—and private buyers are driving office-sales transactions up and down the West Coast, including the Greater Airport area, Paul Jones, senior managing direct of NGKF Capital Markets' Newport Beach office, tells GlobeSt.com. Jones, along with his team's Kevin Shannon, Blake Bokosky and Robert Griffith, recently represented an institutional seller and buyers Newport Beach-based Cress Capital and New York-based C-III in the sale of Newport Irvine Center, a three-story, class-A, 76,837-square-foot office property at 3300 Irvine Ave. here; the property was 87 percent occupied at the close of escrow.

After examining the firm's Q3 office report for Orange County, we noticed some interesting trends in the airport submarket, so we sat down with Jones for an exclusive interview on the subject.

GlobeSt.com: What are the most interesting trends you're noticing in the Airport submarket?

Jones: The Greater Airport market has always been and will most undoubtedly continue to be the main office hub in Orange County. The proximity to the airport and executive housing is unrivaled. Office leasing fundamentals continue to be strong, and there has been significant capital-markets activity this year with about 10 institutional office sales closed and another 10 or so properties currently on the market. We are also seeing the first spec-office developments (the Boardwalk and FLIGHT are currently under development) since the last cycle. The majority of the institutional buckets of capital looking to invest in Orange County either currently have existing holdings in the Greater Airport area or are specifically targeting new investments in the submarket. In the second half of 2016, new buyers, both foreign and domestic, and private buyers are driving sales transactions up and down the West Coast, including the Greater Airport area.

GlobeSt.com: How will this market change going forward?

Jones: With limited new supply outside of the Boardwalk, which is planned for completion third quarter of 2017, and FLIGHT, which is anticipated to complete in 2018, the majority of the class-A office product was built in the mid- to late-1980s. We are seeing investors and operators looking for existing older product such as light industrial and excess corporate real estate that can be repositioned to creative or progressive office projects. The desire for traditional office space seems to have faded away. Investors are looking for product that will differentiate themselves from the typical mid- or high-rise product in the Greater Airport area and something that today's progressive tenant will want in order to retain and hire new talent. This isn't just occurring in low rise product. We have seen some mid- and high-rise product move toward more progressive space, while adding tenant amenities such as outdoor seating areas, Wi-Fi, fitness centers, and multiple food sources.

GlobeSt.com: Is the submarket's proximity to the airport the main reason it has become an office focal point for Orange County?

Jones: The submarket's proximity to John Wayne Airport is one of the major reasons it is considered the hub of the market. John Wayne continues to make improvements to the terminal, and is a very easy airport to get in and out of, with flights to and from all major hubs across the country. Furthermore, the proximity to executive housing along the coastal neighborhoods and easy access for the majority of the employees via the vast freeway network, make the Greater Airport area a logical office location. Cities within this submarket such as Newport Beach, Irvine and Costa Mesa have historically been attractive locations for major employers.

GlobeSt.com: What else should our readers know about the Airport submarket?

Jones: Similar to other West Coast office markets, opportunities to own high quality office product in the Greater Airport submarket are getting harder to find. Deals need to check all the boxes, and underwriting is more conservative, especially as it relates to rent growth and residual pricing. The “perfect” deals that check all the boxes are still making market and seeing strong pricing, but the majority of institutional office transactions have thinner buyer pools than we had in the first half of 2015.