IRVINE, CA—A combination of commuting patterns, access to key educated employees and newly built real estate has made the decision for companies to locate in the Irvine Spectrum submarket an easy one, NKF managing director Jay Nugent tells GlobeSt.com. According to the firm's Q3 office report for Orange County, the Spectrum is becoming the metro's center of gravity, with office rental rates at an all-time high and among the priciest in the market; in fact, the average asking rental rate was up 26.7% from this time last year and was 9.2% above last cycle's high in 2008.
The report goes on to say that rising rents have not dampened absorption gains in this submarket. While the Spectrum contains only 10.7% of Orange County's office stock, it has become the largest absorption contributor, with 43.2% of the greater market's gains.
We spoke with Nugent about the Irvine Spectrum's rise to greatness and the challenges it faces going into 2018.
GlobeSt.com: How long has as the Irvine Spectrum submarket been an “anchor” for the county's office sector?
Nugent: It's been built up over the last 20 years, and it has really reshaped the landscape of the Orange County office sector. It has done well; its asking rate has mirrored that of other prime markets, but it's really only been in the last five to 10 years where we've seen Irvine Spectrum's vacancy, absorption and rental rates outperforming other Orange County submarkets.
GlobeSt.com: What are the factors that have led up to the submarket's strength?
Nugent: It had the land to build new space, and what comes with building is newer and more functional product. This bodes well for companies because real estate needs change to grow. The housing market has been a factor, too—more and more decision makers live in South County, and many residents have moved down there because that's where you can find the new affordable housing. As employees have become more influential in their companies, they have become the decision makers, and this is where they live. This—combined with the fact that this is where you can find educated, qualified employees and new functional real estate adjacent to strong retail—has made it an easy choice for companies to locate there.
GlobeSt.com: What challenges does it face, if any, as we move into 2018?
Nugent: The biggest challenge tenants are facing is finding space in a sub-6%-vacant submarket. There's roughly 2 million square feet in the pipeline or under construction, but it's hard to find affordable space. Right now, the new-construction market is leasing up pretty well, so things should be strong in the Spectrum through 2018.
GlobeSt.com: Are any other submarkets catching up to this one?
Nugent: Not to that scale in terms of size, but one submarket getting a lot of really good traction is Costa Mesa and the North Airport market. A lot of creative and action-apparel tenants that like the authentic urban vibe that Costa Mesa offers, as well as the proximity to freeways, the beaches and easier access to L.A.—and it surrounds some really cool retail projects like SoCo, the Lab and the Camp. It's been really well received by Millennials, and companies are taking notice.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
