IRVINE — A subsidiary of Japan's Toshiba Corp. has backed out of a deal to lease six floors at the Lakeshore Towers building near John Wayne Airport, a deal which would have been one of the county's biggest office lease deals ever.
That leaves Laguna Niguel developer Birtcher without a single tenant for the 18-story building, scheduled to open in June.
Brokers said it was another indication of the continued slump in the county's office market. Tenants are getting harder to find and the bigger ones, in particular, are demanding rock-bottom rents before signing a lease.
Vacancy rates are in the low 20% range around the county, and rents haven't risen in several years.
Toshiba America Medical Systems Inc. in Tustin had been "20 minutes away" from signing the lease after months of talks, Birtcher executive Bill Kearns said Friday, when an executive from the Tokyo-based parent company vetoed the deal.
The 300-employee medical-equipment unit has been headquartered for the last 10 years in a building off the Santa Ana Freeway in Tustin.
Although neither party would discuss details of the lease, Toshiba's rent almost certainly would have been very low for the 120,000 square feet of space it was seeking. The deal also included putting a "Toshiba" sign near the top floor of the building, visible from the San Diego Freeway.
Kearns said he was told that Toshiba America rejected the deal at the last minute because the Japanese parent postponed expansion plans throughout the entire $27-billion company because of the weak worldwide economy.
Toshiba America executives did not return several telephone calls Monday.
Toshiba America Medical makes diagnostic imaging machines, which produce much clearer pictures of patients' bodies than X-ray machines.
Hospitals and clinics are buying more diagnostic equipment each year, says Paul Brown, an analyst at Volpe, Covington & Welty, a San Francisco investment banker.
"It's not an explosive market, but it's growing steadily," Brown said.
Toshiba entered the market about 10 years ago and has been making steady inroads since, Brown said. The machines range in price from about $200,000 for an ultrasound machine to $1 million for magnetic resonance imaging machines.
The Toshiba medical subsidiary says it had sales last year of $400 million and a 10% growth in market share.
Meanwhile, Birtcher and its partners--Japan's Mitsui & Co., which bought into half Birtcher's projects a year ago, and General Electric Pension Trust--face the prospect of making mortgage payments on a building that has not a single tenant. And the market shows little signs of improvement soon, developers said.
The building is part of a complex that also includes a huge health club under construction now after several delays. A 20-story building is also planned.
This was Birtcher's first big foray into the hotly competitive market near the airport, which has grown rapidly in the last 20 years into a major office neighborhood that some call the county's "new downtown." Birtcher had built its Orange County office towers in the central part of the county.
O.C. Office Market Vacant Square Feet In millions '84: 2.4 '85: 5.3 '86: 6.4 '87: 8.8 '88: 9.7 '89: 10.6 '90*: 10.6 Vacancy Rate '84: 12% '85: 23% '86: 24% '87: 23% '88: 23% '89: 21% '90*: 21% * Through September, 1990 Source: Grubb & Ellis Orange County Research Services Group