Rent Growth Cooling In The Irvine Spectrum?

Irvine Spectrum Office Update

(adapted from CoStar Group)

The 20-story 400 Spectrum Center office tower  in Irvine, California.

It could be argued that The Irvine Spectrum Office submarket has become the center of Orange County. It has clearly been the focal point of  most new development after construction was slow to materialize in the rest of the county post-recession.

When looking at buildings larger than 50,000 square feet, 3.1 million square feet have delivered in Orange County since 2016. More than 70 percent of that, or 2.3 million square feet, is in The Irvine Spectrum. As of this writing, only 20 percent of that space is still available for lease.

Some of Orange County’s most notable speculative projects have delivered in Irvine Spectrum. In 2016, Irvine Co.’s 200 Spectrum Center delivered and is now more than 98 percent occupied with anchor tenants WeWork (occupying 44,000 square feet) and Mazda (occupying 110,000 square feet).  Last year, the sister-building was built at 400 Spectrum Center with Cylance, Inc. as its anchor tenant.   A year after delivery, two-thirds of the property is occupied.  By way of comparison, Boardwalk at 18691 Jamboree in The Airport Area,  is only 25 percent occupied.

A diverse pool of tenants have moved into The Irvine Spectrum including Cylance (relocated from The Airport Area);  Broadcom (relocated from UCI Research Park);  Cavium (relocated from Aliso Viejo); and Vyaire Medical (relocating from Yorba Linda).  These transactions alone count for over 1,000,000 square feet of leasing activity.  These, along with many other smaller transactions catapulted Irvine Spectrum to one of the most in-demand markets in the region.  Twelve-month net absorption (net gain/loss of space leased)  as of August was +720,000 square feet (5 percent of total inventory), compared to +410,000 square feet in the prior 12 months.

Despite the increase in space deliveries, strong leasing activity has held vacancies in check. At the end of Q4 2015, The Irvine Spectrum’s vacancy rate was 6.3 percent. As of the end of Q3 2018, the vacancy rate was only 9.3 percent.  By way of comparison, the long-term average,  is 11.4 percent.

While annual rent growth has slowed considerably in 2018, (1.2 percent in Q3 2018 vs 4.5 percent during Q3 2017) It is important to point out that much of the rent growth reported in previous quarters was primarily due to the new (higher priced) deliveries.  Now that construction activity has slowed (for the moment) one would expect rent growth to stabilize.

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