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Corporate Expansion & Relocation

New business address has southern appeal

South Orange County gains momentum

Technology hasn’t hurt the delivery business

By Steve Layton

In 1995, when sunglasses manufacturer Oakley announced plans to build a 425,000-square-foot signature corporate headquarters, manufacturing and warehousing facility in the master planned community of Foothill Ranch, it marked a new era for

South Orange County.

Known for its rolling hills and master planned residential communities, the southern enclaves of South Orange County comprising Aliso Viejo, Laguna Hills, Laguna Niguel, Lake Forest, Irvine, Foothill Ranch, Mission Viejo, San Clemente, San Juan Capistrano and Santa Margarita were primarily considered bedroom communities for the central business districts surrounding Orange County’s John Wayne Airport area.

And, although South Orange County does include the country’s premier technology address, the 3,600-acre Irvine Spectrum, at its northwest boundary, it is the impact made in recent years by some of the region’s and nation’s well-known corporations’ and a number of large industrial users’ decisions to relocate their facilities even further south of the county’s central business district that have been so significant.

Indeed, the success of the Irvine Spectrum has a great deal to do with the evolution and success of the business park’s southern neighbors. To date, 2,200 companies employing more than 36,000 people now make their home in the Spectrum.

In a recent story in the Los Angeles Times, officials noted that the Spectrum has been very successful and is expected to be completed in 25 years, instead of the 40 it had originally projected. Moreover, the Spectrum was designed to collect the fast growing entrepreneurs flowing out of the urban core of the LA basin. In fact most of the Spectrum’s tenants are young entrepreneurs in search of plentiful land and safe neighborhoods. The park’s real heyday was in the 1980s when the Spectrum’s developer, The Irvine Company, managed to appeal to executives moving into the newer planned communities of South Orange County. Many simply decided they didn’t want to

fight the traffic of a daily commute to central Orange County or Los Angeles.

Indeed, the success of the Spectrum coupled with these evolving trends in site selection have proven a strong catalyst for the growth of the communities located even further from the central business districts of Orange and Los Angeles counties.

Consider the fact, recent commercial real estate reports indicate that not only is construction up in many sectors but a majority of the new space including build-to-suit and speculative construction is located in these southern communities and the Irvine Spectrum.

Oakley’s decision to relocate to one of South Orange County’s younger master planned communities is just one recent example of the companies that have opened the window on a vast suburban area with great promise and available land for business relocation and expansion. Moreover, the continued migration of companies further south of the central business districts has solidified South Orange County and the Irvine Spectrum’s place as premier business locations.

Aided by the economy

Of course one of the biggest factors impacting any business growth is the economy. The improving regional and national economies have certainly aided South

Orange County’s ability to grow its business centers. In Orange County, with its more than $82 billion economy, employment figures are up. The current unemployment level of 3 percent is at a low point not seen since the 80s. In its mid-year economic forecast, Chapman University estimated 160,000 new jobs in the county over the next five years. The county’s strong recovery is also linked to fundamental changes in the local economy over the past decade. The strength of the hi-tech sector and related growth in international trade, has helped economic growth throughout the Southland.

According to G.U. Krueger, deputy chief economist of Los Angeles-based California Association of Realtors, Orange County is going to be the next Silicon Valley of California.

John Karevoll, financial editor of Acxiom/DataQuick Information Systems Inc., believes the trends we’re seeing in Orange County right now harken back to what we’ve seen in the San Francisco Bay Area, in Santa Clara and San Mateo counties . . . and like those areas, Orange County is an emerging center of high-tech industries.

To narrow the picture further, many experts believe South Orange County is far ahead of North Orange County or either Los Angeles or San Diego counties — and should get stronger because of its strong quality of life attributes and most of its homes fit what builders call the move up or second home category designed for larger families and more affluent couples.

Spurred by this improving economy, a positive outlook for employment, shrinking vacancies, a lack of development over the past four years and a renewed willingness from financial institutions to invest in new development projects, the commercial real estate community is once again taking action. Recent figures gathered by CB Commercial Real Estate Group indicate a healthier commercial real estate market with new construction in all sectors including industrial, office and retail. What is important to note, however, is that a majority of this activity is taking place in South Orange County communities.

The office market

The Orange County office market is growing steadily, according to CB Commercial’s second quarter report. The amount of office space absorbed in the first six months of 1997 is already greater than in any full year since 1990. Vacancy rates have fallen to single digits throughout the county and lease rates are rising at double digit rates in the tightest markets.

The South Orange County office market is the tightest in the county with an average vacancy rate of just 5.76 percent. Strong demand is expected to maintain this low rate and lack of supply is causing rates to rise rapidly. One of the first speculative low-rise office developments in over eight years in Orange County will occur this year in Aliso Viejo, as reported by CB Commercial, with the 175,000-square-foot first-phase of The Summit office park, which is already more than 60 percent pre-leased. The project is planned for an eventual 1.3 million square feet.

RemedyTemp, Inc. will move its corporate headquarters into a 52,000-square-foot space in The Summit along with Safeguard, currently located in Anaheim, which will occupy approximately 58,000 square feet at The Summit.

Further supporting the strength of South Orange County’s office market is the well-publicized relocation announcement made by Fluor Corporation. The Mission Viejo Company and Fluor Corporation recently announced that Fluor Daniel’s Southern California operations will move from Irvine to 30 acres in Aliso Viejo. With over $11 billion in revenue in 1996, Fluor is ranked as the 123rd largest U.S.corporation by Fortune Magazine. The company will occupy more than 500,000 square feet in multiple buildings on two sites bringing over 2,000 jobs to Aliso Viejo.

Industrial market

As a whole, Orange County’s industrial market continues to expand. Indeed, for this market segment, the numbers speak for themselves. According to CB Commercial’s second quarter report, the amount of available industrial space increased from 16.1 million square feet at the end of the first quarter to 17.3 million square feet at the end of the second quarter of 1997. Just over 1 million square feet of this 1.2 million square foot increase was due to the addition of new construction. South Orange County accounted for 58 percent of the increase in new first generation space availability in the entire county due to the concentration of new construction in that region alone.

Thus far in 1997, 14 industrial buildings have been constructed in Orange County adding over 521,000 square feet of space to the market. CB Commercial also reports, there are currently another 55 buildings under construction, totaling just under 3.5 million square feet. Between what has already been constructed this year, and what is currently under construction, there will be over 4 million square feet of new industrial construction in 1997, 38 percent more than was built in 1996.

Almost three-quarters of the new industrial space being built this year is in South Orange County. Even though South Orange County currently accounts for just 10.8 percent of the county’s industrial market, 2.9 million or 72 percent of the 4 million

square feet of new construction this year is in South Orange County. Of the manufacturing and warehouse space currently under construction, 80 percent is located in South Orange County. Of the almost 500,000 square feet of R & D; space currently under construction in Orange County, over 278,000 square feet or 56 percent is occurring in South Orange County.

The office and industrial market statistics illustrate the amount of activity currently taking place in South Orange County. To truly comprehend the attraction to South Orange County’s business centers, it’s important to outline the region’s key locational factors that have contributed to site selection decisions. These factors have also brought commercial developers back into the region, following the fall off in development activity which resulted from the recession and decline in the overall real estate market.

Take for example, the AEW/LBA Acquisition Co., LLC. and Layton Belling & Associates (LBA) recent implementation of a Corporate Build-To-Suit Program. The company has identified South Orange County as one of Southern California’s primary markets targeted for development and, among other targeted projects for South Orange County, is moving forward on a build-to-suit project on a nearly 8-acre parcel in Mission Viejo. LBA’s initial conservative approach to build-to-suit projects reflects the company’s intention to limit real estate development to projects supported by “real demand” and strong market dynamics to avoid the overbuilding problems of the 1980s.

LBA’s principals bring with them a long history of development expertise in Southern California including development of some of Orange County’s landmark office towers, primarily in the airport area. That perspective has served the company well in making investment and development decisions. LBA is looking for similar build to suit or land opportunities in San Diego and Los Angeles counties that match the fundamentals found in South Orange County and within markets where the company owns and operates existing properties.

Quality of life

Access has always been fundamental to an areas’ potential for economic development. Historically, cities were built along waterways and rail lines. Today access to major transportation routes remain critical to a region’s future.

The opening of the 15-mile, $1.5-billion San Joaquin Hills Transportation Corridor in November 1996 tied together the residential South Orange County and the office/industrial and retail of Central Orange County as never before. The road links John Wayne Airport to San Juan Capistrano, parallel to I-5 and Pacific Coast Highway. Today, the state-of-the-art toll road serves more than 53,000 cars a day.

The Eastern Transportation Corridor is a 24-mile high-tech toll road that will parallel the Costa Mesa freeway, east of existing developments in Anaheim Hills, Orange and Tustin. It begins at the 91 Freeway near the Riverside County line and travels along the Costa Mesa Freeway splitting into two legs at Santiago Canyon Road in the city of Orange. The west leg will merge with Jamboree Road south of I-5 and the east leg will connect with the Laguna Freeway and I-5 traveling into Lake Forest.

When completed, the 30-mile Foothill Transportation Corridor, will connect the Eastern Transportation Corridor in North Irvine to I-5 just south of San Clemente, running along the eastern edge of the south county communities.

For businesses and residents within the communities throughout South Orange County, these toll road construction projects represent major transportation arteries significantly easing traffic movement into and out of the region. For companies such as Oakley and many other manufacturers, the development of these toll roads are critical to moving product into distribution hubs and out into major markets.

For years South Orange County residents have enjoyed numerous quality of life attributes within their communities such as regional parks and well-tenanted retail and entertainment centers all within convenient master planned environments. Surprisingly, today’s business owners are in search of many of these same attributes when choosing a new site.

In Oakley’s case immediate access to Whiting Ranch Regional Wilderness Park, one of the area’s largest parks, and the ability to build a signature corporate headquarters on a significant amount of land was crucial to relocating to Foothill Ranch.

Fluor Corporation, RemedyTemp Inc. and Safeguard will all relocate to campus-style office environments in close proximity to the Aliso and Wood Canyons Regional Park with abundant biking and hiking trails and near a number of major retail and entertainment power centers.

For many of these companies, the same quality of life factors that lured residential developers and homeowners into the area are what ultimately brought the communities of South Orange County to the attention of developers and companies, both large and small.

It may only be a matter of time until the initial office and industrial projects currently in planning and construction stages are completed and businesses begin relocating into their build-to-suit facilities. From that point the young communities of South Orange County should begin to realize their place as vital business districts. The impact of new jobs and new industries on the region’s economy as well as its attraction to many supporting service industries will further enhance the region’s growth potential.

For Orange County as a whole, South Orange County’s continued strong development will enhance its place as a premier business location on a national and international level.

Steve Layton is a founding principal of Layton Belling & Associates (LBA), a full service real estate investment, management and development company. Founded in 1991, LBA is headquartered in Newport Beach with offices in San Diego, Los Angeles and Temecula. Layton is a 15-year veteran of the real estate industry whose experience includes development of office, industrial and retail projects throughout Southern California, including a number of landmark projects with The Koll Company.

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