ISSUE

Q1

ENDING
2013

The Orange County Office Group

This Issue:

BUILDING SPOTLIGHT:

A GUIDE FOR DECISION MAKING

Rental Rates:
$2.25 - $2.30 FSG

2,3,4,5
6

ORANGE COUNTY OFFICE MARKET

BY: SCOTT W. JOHNSTONE

EXECUTIVE SUMMARY: POSITIVE MOMENTUM

Positive Trend. The office market in Orange County

tion this quarter, coming in at just under 600,000 square

continued to show signs of recovery, posting just over

feet. A Look for researched-oriented business, IT, de-

700,000 square feet of positive net absorption in the

fence, medical and alternative energy companies to lead

first quarter 2013. This gives the market a total of over

the charge of positive absorption in the upcoming year.

ued their downward trend, while lease rates appeared

2600 Michelson Drive is surrounded by numerous local amenities including San

Joaquin
Wildlife
Sanctuary. Numerous restaurants,
hotels, retail, fitness clubs
and service facilities are
within
walking
distance.

2600 Michelson Drive

past 11 quarters. Both vacancy and availability contin-

2600 Michelson is ideally situated in the center the airport

area with direct access to the
to the San Diego (I-405), and
minutes away from the Santa
Ana (I-5) and Costa Mesa (I55) freeways, and the Toll Road
(73). It is also located a mile
away from John Wayne Airport.

Executive Summary

Team Information

5.3 million square feet of positive absorption over the

way which makes this building

an Orange County landmark.

Market Graphs

2600 Michelson Drive

Located within the heart of

the highly desirable Airport
Area of Orange County, 2600
Michelson is a 307,662 square
foot, 16 story, Class A office
building.
2600 Michelson
features unobstructed views
of Orange County, a recently
renovated two story main
lobby, and redesigned entry-

Building Spotlight

to be finally firming up. While these are positive indications, stability will need to be sustained in coming
quarters to be considered recovery.
Rental Rates: The average asking full-service gross
(FSG) lease rate per month per square foot in the Orange County office market was $1.93 at the end of the

Vacancy : Vacancy continued their downward trend in the

first quarter. Direct and Sublease space The Orange County office market finished in the quarter at 14.9%, a substantial decrease from the previous quarters rate of 15.13% and
significantly down from both the Great-Recession peak of
nearly 18% in the second quarter of 2010 and the market
high of 23% recorded in 1990. We are forecasting that vacancy will continue its downward trend in 2013, ending the
year at around 13%.

quarter a 2.59% decrease from the previous years

rate of $1.97 and the same as 2012s third quarter rate,

Jobs: The jobless rate in Orange County was 6.5% in Feb-

hopefully, indicating a bottom in the downward trend

ruary 2013 down from a revised 7.1% in January 2012

of asking lease rates. The record-high rate established

and below the previous years estimate of 8.1%. This com-

of $2.77 was established in the fourth quarter of 2008.

pares with an unadjusted unemployment rate of 9.6% for

Class A asking rates for the county averaged $2.11 FSG

California and 8.1% for the nation during the same period.

- the highest being the South County market where

According to the State of California Employment Develop-

Class A rates average $2.30 FSG. We are forecasting

ment Department, Orange County saw a net increase of

that rates will begin to increase in 2013.

35,200 payroll jobs from February 2012 to February 2013.

The largest gains were 9,700 in the in professional and

Absorption: The Orange County office market showed

over 700,000 square feet of positive net absorption this
quarter, giving the market a total of 2.4 million square
feet of positive net absorption for the year. Class B
space has the greatest amount of positive absorp-

business services and 8,200 in leisure & hospitality; however, Orange County lost 600 government jobs during that
same period.

p2

ORANGE COUNTY FIRST QUARTER 2013 MARKET STATISTICS

Rentable Square
Under
Feet
Construction
Square Feet
Airport Area
Costa Mesa
Irvine
Newport Beach
Total
North Orange County
Anaheim Hills
Brea
Buena Park
Fullerton
La Habra
La Palma
Placentia
Yorba Linda
Total
South Orange County
Aliso Viejo
Dana Point
Foothill Ranch
Irvine Spectrum
Laguna Beach
Laguna Hills
Laguna Niguel
Lake Forest
Mission Viejo
Rancho Santa Margarita
San Clemente
San Juan Capistrano
Total
Central Orange County
Anaheim
Orange
Santa Ana
Tustin
Total
West Orange County
Cypress
Fountain Valley
Garden Grove
Huntington Beach
Los Alamitos
Seal Beach
Stanton
Westminster
Total
Orange County Total

Source: Costar

Vacant
Vacancy Rate 1Q13 Available Square Availability Rate Average Asking Rent
Square Feet
Feet
(FSG)

Net Absorption
1Q13

Net Absorption 2012

9,438,100
26,909,738
13,543,178
49,891,016

0
0
496,900
496,900

1,481,370
3,653,197
1,497,898
6,632,465

15.7%
13.6%
11.1%
13.3%

1,493,119
3,842,748
1,534,784
6,870,651

15.8%
14.3%
11.3%
13.8%

$2.05
$2.14
$2.46
$2.22

(61,691)
252,895
(122,939)
68,265

(35,272)
561,726
106,940
633,394

1,396,685
4,114,897
841,049
4,079,320
667,617
712,038
267,589
423,502
12,502,697

0
0
107,000
0
0
0
0
0
107,000

81,256
463,448
96,654
404,894
66,122
138,343
51,612
29,260
1,331,589

5.8%
11.3%
11.5%
9.9%
9.9%
19.4%
19.3%
6.9%
10.7%

152,589
777,335
158,690
404,894
67,178
252,845
50,447
73,102
1,937,080

10.9%
18.9%
18.9%
9.9%
10.1%
35.5%
18.9%
17.3%
15.5%

$2.05
$1.90
$1.65
$2.03
$1.49
$2.06
$1.54
$1.73
$1.81

9,677
(13,328)
(5,909)
80,248
727
4,760
2,154
(3,171)
75,158

1,734
112,784
595
(27,447)
16,073
(8,665)
942
43,250
139,266

3,406,385
635,849
920,715
11,868,751
736,640
1,783,765
1,776,844
2,852,199
2,651,057
249,472
338,308
865,688
28,085,673

0
0
0
0
0
39,000
0
0
0
0
0
0
39,000

298,247
47,397
176,595
1,158,746
62,518
327,908
212,936
370,949
280,844
55,853
57,337
78,083
3,127,413

8.8%
7.5%
19.2%
9.8%
8.5%
18.4%
12.0%
13.0%
10.6%
22.4%
16.9%
9.0%
11.1%

302,701
48,773
209,945
1,214,942
78,033
416,085
273,295
591,605
280,844
63,416
58,537
197,888
3,736,064

8.9%
7.7%
22.8%
10.2%
10.6%
23.3%
15.4%
20.7%
10.6%
25.4%
17.3%
22.9%
13.3%

$2.01
$2.10
$1.90
$2.12
$3.06
$1.84
$2.13
$1.58
$2.26
$1.56
$1.71
$1.97
$2.02

(2,915)
(3,200)
61,737
175,141
(484)
(5,984)
3,987
24,439
513
7,218
(1,886)
1,623
260,189

182,566
(9,646)
25,238
16,348
(5,043)
(36,924)
6,783
(28,581)
67,089
(1,640)
19,310
14,069
249,569

7,334,782
7,263,013
14,856,326
1,759,068
31,213,189

0
0
0
0
0

1,391,363
940,819
1,897,629
277,798
4,507,609

19.0%
13.0%
12.8%
15.8%
14.4%

1,571,374
1,491,486
2,867,489
265,116
6,195,465

21.4%
20.5%
19.3%
15.1%
19.8%

$1.71
$1.97
$1.63
$1.61
$1.73

45,267
45,862
78,750
(2,674)
167,205

329,090
219,338
102,037
74,790
725,255

2,242,344
1,918,746
2,875,144
3,730,748
616,808
618,927
143,361
1,323,109
13,469,187

0
469,000
0
7,500
0
0
0
0
476,500

355,228
203,276
154,370
436,879
36,010
11,258
8,303
69,918
1,275,242

15.8%
10.6%
5.4%
11.7%
5.8%
1.8%
5.8%
5.3%
9.5%

448,351
228,276
158,970
436,879
38,514
11,258
22,424
75,764
1,420,436

20.0%
11.9%
5.5%
11.7%
6.2%
1.8%
15.6%
5.7%
10.5%

$1.82
$1.98
$1.62
$2.12
$1.79
$2.95
$0.85
$1.80
$1.87

99,263
1,389
(1,639)
36,848
(6,310)
2,624
3,390
6,585
142,150

(190,775)
(38,169)
(9,646)
83,524
4,647
10,024
7,741
(13,614)
(146,268)

135,161,762

1,119,400

16,874,318

12.5%

20,159,696

14.9%

$1.93

712,967

1,601,216

p3

Source: Costar

NET ABSORPTION

Vacant Space

CHANGE IN THE AMOUNT OF OCCUPIED SPACE FROM ONE QUARTER CHANGE IN THE AMOUNT OF VACANT SPACE FROM ONE QUARTER TO
TO THE NEXT
THE NEXT

Square Feet

Million Square
Feet

1,200,000 ............................................................................
900,000
600,000
300,000
0

............................................................................

Direct SF

Sublet SF

12.00 ............................................................................
10.00 ............................................................................

............................................................................
8.00 ............................................................................
............................................................................
6.00 ............................................................................
...........................................................................

-300,000 ............................................................................
-600,000 .............................................................................

4.00 ............................................................................
2.00 .............................................................................
0.00

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
11 11 11 11 12 12 12 12 13

2Q 3Q 4Q 1Q 2Q 3Q 1Q 1Q
11 11 11 12 12 12 12 13

SALE COMPARABLES

3020 Old Ranch Parkway,

Seal Beach
5 properties
Size: 297,241 Square Feet
Price Per SF: $285.96

20162 Birch Street,

Newport Beach
Size: 31,186 Square Feet
Price Per SF: $207.32
Source: Costar

5445 Oceanus Drive,

Huntington Beach

4 properties
Size: 124,659 Square Feet
Price Per SF: $104.28

26840 Aliso Viejo

Aliso Viejo
Size: 33,915 Square Feet
Price Per SF: $191.66

16842 Von Karman Avenue,

Irvine
Size: 100,461 Square Feet
Price Per SF: $99.54

9838 Research Drive,

Irvine
Size: 9,900 Square Feet
Price Per SF: $289.99

p4

Source: Costar

U.S. Cap Rate Comparison

Based on Office Building Sales of 15,000 SF and Larger

Based on Office Building Sales of 15,000 SF and Larger

Dollars per SF

Cap Rate Percentage

U.S. Price/SF Comparison

PERCENT OF ALL VACANT SPACE BY CLASS

ORANGE COUNTY

VACANCY BY AVAILABLE SPACE TYPE

ORANGE COUNTY

Class A Class B Class C

Direct Sublet
9%

3%
36%

55%

97%

UNITED STATES

UNITED STATES
Direct Sublet

Class A

Class B

Class C

4%

17%

34%

96%
49%

p5

Source: Costar

EXISTING INVENTORY COMPARISON

BASED ON TOTAL RBA

BY SPACE TYPE

BY CLASS

Single
20%

Class C,
15%
Class A , 29%

Class A
class b
Class B, 56%

class c

Single
Multi
80%

Multi

LEASE COMPARABLES
660 Newport Center Drive
Newport Beach

4675-4695 MacArthur Court

Newport Beach

895 Dove Street

Newport Beach

Tenant: Stradling Yocca Carlson &

Rauth
Size: 74,000 Square Feet

Tenant: Clean Energy

Size: 70,000 Square Feet

Tenant: Newmeyer & Dillion, LLP

Size: 53,036 Square Feet

1901 Main Street

Irvine

555 Anton Boulevard

Costa Mesa

4675 MacArthur Court

Newport Beach

Tenant: Morgan Stanley Smith Barney

Size: 45,000 Square Feet

Tenant: Sterns Lending Inc

Size: 41,076 Square Feet

Tenant: MCS Software

Size: 39,734 Square Feet

p6

TEAM EXPERIENCE
With over 60 years in the business, we pride ourselves as market makers, providing our clients the most updated and in-depth
perspective on todays marketplace. Our experience and historical knowledge allows our clients to make smarter decisions,
resulting in more profit and cost saving opportunities.
The combination of a sole proprietors mentality and attention to detail mixed with institutional experience truly makes us the
best Partner for all of your Corporate Real Estate Brokerage needs.
Please call upon us to provide you with the highest level of friendly service and market data to assist you with making smarter,
faster real estate decisions.

TEAM CAPABILITIES
Landlord Advisory Services
Disposition Services
Negotiation Strategies and Tactics
Marketing Strategies and Tactics

In-Depth Market Insights

Institutional Ownership Expertise
Site Acquisition
Development Service

Scotts and his team were instrumental in leasing our building faster than the market conditions would
predict and at higher rates than the declining market. Ultimately they were able to sell the asset for an
above average value in a very tough market

DAVID GIRTY
Senior Vice President

SCOTT JOHNSTONE
President
O
D
M
F

O
D
M
F

949.825.7500
949.825.7959
949.300.1057
480.772.4163

ALEX LYON
Senior Associate
O 949.783.5280
M 949.244.6147
F 480.772.4163

GARY ABRAHAM
Vice President

949.825.7500
949.825.7501
949.637.1286
480.772.4163

O
D
M
F

CA Broker # 01052587

CA Broker # 00950979
scott.johnstone@CBCAlliance.com

Kendrick Carlin,
Senior Asset Managter
TA Associates Realty

david.girty@CBCAlliance.com

ALEX NAGEL
Associate

O 949.783.5278
M 949.829.7600
F 480.772.4163

949.825.7500
949.825.7958
714.488.8650
480.772.4163

CA License # 01061205
gary.abraham@CBCAlliance.com

DEVON STANKE

KATIE JOHNSTONE
Marketing Assistant

Marketing Coordinator

O
D
M
F

O 949.825.7500
M 949.375.3183
F 480.772.4163

949.825.7500
949.825.7957
949.315.1966
480.772.4163

CA License # 01710471
alex.lyon@CBCAlliance.com

alexander.nagel@CBCAlliance.com

katie.johnstone@CBCAlliance.com

devon.stanke@CBCAlliance.com

5 Upper Newport Plaza, Suite 200, Newport Beach, CA

www.CBCAlliance.com
The information contained herein was obtained from third parties, and has not been independently verified by the real estate brokers. Buyers/tenants should have the experts of their choice inspect the
property and verify all information. Real estate brokers are not qualified to act as or select experts with respect to legal, tax, environmental, building construction, soils-drainage or other such matters.