In 1973, history of sorts was made in Orange County when a three-story, glass office building appeared on MacArthur Boulevard near what is now called the John Wayne Airport.
The building, occupied by the Coldwell Banker real estate brokerage, was then the tallest for miles around. It was part of what was to be one of the airport's first major business complexes. And it was a gamble for its builder, the Newport Beach-based Koll Co., because until then the county's only prestige corporate address was nearby Newport Center, which boasted several high-rise office buildings with ocean views.
Because of the Coldwell Banker building's rather unimaginative, although eye-catching mirrored-glass architecture, it was often derisively referred to as "the flash cube."
Equally inauspicious for the county airport's emergence as a business center was the belated realization that something was amiss--there was no place for employees to eat at noontime. As an afterthought, a restaurant mall was built just off the San Diego Freeway to which office workers had to drive.
But now, barely 12 years later, the area within a two-mile radius of John Wayne Airport and close to the San Diego Freeway is rapidly turning into one of the most sophisticated business centers in Southern California, as developers compete to build the tallest, trendiest structures with the most amenities.
"Gorgeous, gorgeous facilities are going in," said Lora King, head of facilities management for the Rolm Corp. King has been shopping for 55,000 feet of new office space in Orange County for that high-tech communication company's Southern California headquarters.
Encouraged by a new availability of financing, a fresh allocation of commercial zoning in Irvine and Orange County's continuing economic expansion, developers have been tripping over each other trying to get office projects built.
The unprecedented office building activity is creating a large glut of office space in the airport area that's not expected to be fully occupied for at least the next two years, according to area brokers.
About 13% of the airport area's office space now is vacant. Studies by both Grubb & Ellis and Coldwell Banker project vacancy rates could climb to 20% by year-end because of the binge of new construction. The existing 10.6 million square feet of office space in the airport area will increase by about 37% to 14.5 million square feet when the buildings now under construction are complete.
'A Tenant's Market'
"It's a tenant's market right now," said Jim Wolf, senior associate at the real estate consulting firm of Al Gobar & Associates. To nab large tenants, building owners say they are offering between one and two months' free rent for every year to which a tenant commits to a long-term lease. They are also throwing in generous office improvements and parking concessions.
Jim Bryant, the regional managing partner of Alexander Grant, a national accounting firm needing 16,000 square feet of prime office space in the airport area--and therefore considered a hot prospect--said that he bargained for a month, playing one prospective landlord against the next, for concessions. Finally, he said, he settled on a Koll building because, among other things, he was promised a $60,000 to $100,000 spiral staircase between the 10th and 11th floors that the firm will be leasing.
But beyond lease enticements, some of the county's biggest developers--such as the Irvine Co., the Koll Co. and C.J. Segerstrom & Sons--are seeking a competitive edge by offering a broad array of tenant conveniences, from dining and athletic clubs to pedestrian shopping and restaurant plazas, to concierge services, high-tech telecommunications and security systems, hotel conference facilities, sculpture gardens and office buildings wrought with imported tile, marble or granite.
These new office buildings are the highest-priced in the county, with the most expensive full service rents hovering above $2.50 a square foot, and are aimed at the county's creme de la creme tenants--the law and accounting firms and corporate giants that want prestige quarters to reflect their image and impress their clients.
"Everyone is offering rent concessions, so we are competing more with amenities," said John Pierce, vice president of marketing for Koll Center Irvine. "We are not going to build boxes anymore."
"In an excellent market there is no need to build an expensive building," said Mike Meyer, managing partner at the Newport Beach office of the Kenneth Leventhal & Co., a real estate accounting and consulting firm that helps developers analyze the economics of office projects.
But in today's fiercely competitive market, he said, those Orange County developers who can afford it are playing a game of one-upmanship. He said they are investing 15% to 35% more on high-quality buildings in the hope of reaping stronger long-term profits.
Low Rate of Return