[IMGCAP(1)]

SAN DIEGO—Decisions on whether or not to go spec with office development are based upon a host of factors including risk tolerance, Cruzan's leasing director Stacy Meronoff tells GlobeSt.com. We spoke exclusively with several development experts to find out why now is the right time for this development to come back to the various Southern California markets. Here's what they had to say.

Meronoff: Risk tolerance of capital markets is a big piece to the puzzle, and financing sources all have different risk profiles, but usually decisions on whether or not to go spec are based upon ownership structure, plans for the project, the economy, the submarket, historical net absorption, inventory, anticipated growth sectors, lease rates, occupancy and overall depth of tenants in the market. Major developers such as Irvine Co. can finance their own projects, so they can typically be the first out of the gate for pure spec development. Regardless, all developers will keep under consideration that replacement costs in the top submarkets are typically $500 to $600 per square foot, so the repurposing of existing properties seems to be a trend that is here to stay for the foreseeable future.

[IMGCAP(2)]

Gary Steinhardt, senior director, investment group, American Realty Advisors: The Orange County and West Los Angeles markets are characterized by low levels of construction, combined with some of the strongest rent growth in the country. Both locales have recently achieved 8% rent gains, signifying healthy markets, and attracting increasing interest from developers. Orange County, Los Angeles and San Diego have relatively low vacancy rates of 10.1%, 11.2%, and 10.8%, respectively, nearing equilibrium. Much of this vacancy is in dated 1980s product that doesn't have the appeal of modern facilities or tastefully repositioned lifestyle office. If one drills down, the supply/demand balance appears to favor development of the right product in the right locations. We are seeing an increasing number of requests for development capital and, fortunately, the capital markets appear to be very selective, focusing on the best submarkets and developers and looking for the right product to meet today's demand.

[IMGCAP(3)]

Doug Killian, SVP, Voit Real Estate Services: Most of the capital in recent years has been chasing multifamily properties, which has seen compressed cap rates, and now conservative investors are looking at office product as a great alternative. This is especially true for product that will support progressive work environments for their customers. Referred to as "adaptive reuse office," this is a trend that is here to stay. It requires less square footage for each individual and provides collaborative, open work areas, which creates a greater return on the dollar. In fact, in Orange County, we anticipate 2.5 million square feet of creative-office space to be delivered to the marketplace over the next 18 months.