Is Orange County in Full Transition to Creative Office Space?

By Dennis Kaiser

Last week, Connect Orange County brought together more than 500 CRE leaders for an information-packed conference at the Balboa Bay Club in Newport Beach. One discussion focused on answering the question: is OC’s office market remaining traditional, or is it in a full transition into creative space that leverages advanced technology? Here’s what they had to say:

John Hancock Real Estate’s Parker Jones says the Orange County market is still in a transition phase into a more open, un-tethered workspace. Traditional firms are still getting comfortable with adopting to that shift. “It is still a work in progress,” he says. John Hancock recognized the need to update the architecture and amenities of its portfolio similar to what’s found in a campus environment. The result is the blending of multiple strategies to meet tenant requirements. The hybrid workspace may encompass the open architecture Millennials demand, along with more traditional plans.

Cox Castle & Nicholson’s David Wensley agrees the market is “two to three years into a transition.” His “dinosaur” law firm recently reconfigured workspace in Orange County, resulting in a more transparent  and collaborative environment. The firm recognized it was planning for the future, not what worked in the past.

Wensley also notes that new considerations are cropping up in lease negotiations involving creative space. The challenge for owners, he says, is finding the right balance between users. Leases now must include such items as dog provisions, defining what sporting equipment will be installed, and the hours when certain activities can occur.

TechSpace’s Vic Memenas believes the OC market is in the first inning of the transition to creative space. But cautions, converting to creative space must make sense for a companies’ culture, and not for just a herd mentality.

Memenas notes what has changed in the marketplace is the customer expectation to an Uber-like experience. That encompasses on-demand, high-touch, technologically advanced workspaces that allow companies to scale as needed. He’s seen that evolve from TechSpace’s pioneering days in Orange County, solving a real estate problem for entrepreneurial business owners.

But it also addresses another issue: connections. He says the work environment now must provide a sense of community for like-minded entrepreneurs and start-ups. Memenas says collaboration and interaction increases as isolation decreases for those who are attracted to co-working environments.

UCI’s Dr. Carolyn Stephens, says its Applied Innovation Incubator, which generates more than 130 ideas annually, envisions those entrepreneurial start-ups finding homes within the Orange County CRE space. That bodes well for developers and landlords, though she admits Silicon Valley VC’s may desire the start-up to migrate northward closer to funders. The space requirements of those who decide to remain in OC will depend on the stage of the company, though UCI is experiencing a wide range of “well-cooked” fully-formed incubator companies emerging.

Hyundai Motor America’s Debra Streff, who leads the real estate, facilities and construction team for the automaker, says its new HQ facility in Fountain Valley, CA delivers a significantly increased amount of transparency. The concept behind the space plan was to provide “more collaboration.” The efforts to increase transparency works both ways for managers and staff, who can tell better if it is a good time to talk or if the person is involved in something.

ORION Property Partners’ Jay Carnahan says architecture is the key to defining what is creative workspace and what is more traditional office space. And even within creative environments, there are a range of definitions from “creative lite” to “creative heavy.”

A true creative space, Carnahan says, is located in an urban market, and typically offers space that’s open to the ceiling, features glass and open workspaces, all of which typically drives up the cost. That becomes a consideration that may hinder some landlords or occupiers from building out space as a full creative office environment.

Importantly, Carnahan says employees want to be near amenities, which is one reason why “higher rents are being achieved in properties located closer to those amenities.” He believes the Orange County market is going to experience a “bifurcation” between properties that have in-demand amenities and stand-alone assets where employees “have to get in their car to go somewhere.”

But, Carnahan also notes Hines and Bixby Land Co. are achieving rent premiums for the creative TI spaces they’ve done. These spaces lease up faster because they become recruitment tools for companies. It is likely the first time when “employees’ votes count now,” Carnahan says.

For comments, questions or concerns, please contact Dennis Kaiser