Connect OC Recap: Pricing Advantage, Amenity Advantage, Plus the Beach

By Dennis Kaiser

Nearly 450 commercial real estate leaders gathered in Irvine on Sept. 25 for Connect Orange County. The event kicked off with tours of Trammell Crow Company’s newest office development, The Boardwalk OC, and concluded with a cocktail reception on the eighth-floor outdoor terrace overlooking the two-acre courtyard. Four panel discussions included an update of legislative issues, an overview of redevelopment efforts across the county and how industry pros are getting deals done today.

The Orange County Industry Leaders panel featured some of the most active and influential investors and developers who continue to shape this growing region. The conversation was moderated by NKF’s Greg May and encompassed a discussion of the hottest projects and what trends are driving activity.

CBRE’s Kurt Strasmann said the Orange County office market is being driven by a low unemployment rate (2.6%), and that’s causing companies to ask: How are we going to attract and retain people? He notes it is the No. 1 question posed to him. On the industrial front, the 1.5% vacancy has led to what he called a “small overpricing” and he expects “tough sledding for users for awhile’” since it will be difficult to find space.

Trammell Crow’s Tom Bak said three key trends the company is tracking include co-working and flexible office space; e-commerce; and active living lifestyle multifamily.

Companies are seeking flexibility with their workspaces today, as well as environments that help them attract and retain top talent. He said that’s a reason behind Trammell Crow adopting approaches at its office projects found in the hospitality sector, which are working to enhance the customer service experience.

Bak predicts that the emergence and growth of e-commerce will “extend the industrial cycle significantly.” And he says the company sees tremendous opportunities with active lifestyle residential projects, given the aging Baby Boomer demographic and it’s coming “Silver Tsunami.”

CBRE’s Strasmann said one of the biggest trends he’s noticed too is “the hospitality experience is what users now expect in office projects.” This is being driven by companies placing a high priority on attracting and retaining employees. Still, he says, the market offers comparative value when one considers Orange County’s $350 price per-square-foot to San Diego’s $750-per-square-foot price. That may be one reason Chipotle relocated its headquarters to Newport Beach from Denver.

Stream Realty Partners’ Martin Pupil noted Orange County is attractive to companies from a cost perspective. Yet, the tight labor market is worth paying attention to because it could cause shifts to markets beyond the traditional cores, and the lack of affordable housing is a concern.

In regards to the co-working trend, Pupil pointed out a tax shift and offset of risk for corporate users may drive decisions based on balance sheet considerations, which will have an impact on CRE. That change is one reason big co-working companies such as WeWork have begun to focus on larger enterprise users rather than gig-economy workers.

Shopoff Realty Investments’ John Santry says trends they’re seeing are the size of units continue to shrink, and there’s more infill projects, in particular horizontal mixed-use developments such as its Uptown Newport project. Another trend they are tracking is parking, specifically the reduction in both for-sale and rental projects as a result of ride sharing and transit-oriented developments.

John Hancock Real Estate’s Ray Rothfelder said a strategy that his company has adopted and strives to achieve is “total integration” as a way to attract tenants to its properties. That translates to offering a mix of uses and amenities that are brought “together on one project,” he said. He notes owners must factor in today’s amenity needs, as well as what will make the asset more attractive later should it decide to divest the property. “You have to get it right for the project,” he says.

A challenge for Orange County to overcome is the lack of a true center and the ‘urban cool’ vibe that has found favor with Millennials. Unless someone grew up in the county they may not know what the area offers in terms of quality of life. Projects such as those being built in the Platinum Triangle around Angels Stadium, as well as its adaptive reuse project in the Anaheim Packing District, will work to change that, says Rothfelder.

NKF’s May wrapped up the conversation, noting that Orange County has a “pricing advantage, an amenity advantage, plus the beach.”

For comments, questions or concerns, please contact Dennis Kaiser