Fluor’s Move Leaves O.C. Office Landscape With Vast Vacancy
The postmodern complex that dominates the horizon along the San Diego Freeway in Irvine is officially known as the Park Place Office Campus. But for the past 23 years, the project--an Orange County landmark--has been home to its first Fortune 500 company, Fluor Corp.
The glass buildings and tower have become so closely linked to the nation’s largest engineering and construction firm that many think of the site simply as “the Fluor building.”
But after more than two decades as the project’s most visible tenant, Fluor is leaving at month’s end for a campus-style complex in Aliso Viejo. Left behind will be a crater-sized hole in the heart of Orange County--about 600,000 square feet of space. It is the single-largest vacancy ever to hit the market here.
Faced with the equivalent of leasing a 24-story tower--taller than any building in Orange County--Janine Padia, head of Park Place leasing for Winthrop Management, is confronted with an immense task. That much space has never had to be filled in her 13 years at Park Place, which faces stiff competition from other campus-style projects.
But the opening may be coming at an opportune time. The region’s vigorous economy has created the strongest demand for office space in years. The county’s vacancy rate fell to 8.4% at the end of 1998, the lowest since Grubb & Ellis Inc. began tracking the office market 14 years ago.
“If we kept it leased when things were so bad, hopefully we can keep it leased when times are good,” said Padia, whose employer manages and partly owns the sprawling complex.
Completed in 1981, Park Place spreads over more than 100 acres. It consists of 1.8 million square feet, including six four-story buildings, a 10-story tower, single-story offices, and a concourse that connects every structure.
Like many campus projects, Park Place has gardens and fountains. But it also has amenities found in high rises, such as a dry cleaner, florist and travel agency.
Its hallways gently curve like rivers, flowing into a 1,500-seat cafeteria, a full-service restaurant and a 120-seat auditorium. Across the parking lot are a dozen eateries and a 10-screen movie theater.
The building’s futuristic look--in particular, a mushroom-shaped steel and glass tower and Tinker-Toy-like structures that house the mammoth air conditioning system--has caught the eye of motorists and filmmakers alike. The main office complex has been a backdrop for films such as “Demolition Man” and “Defending Your Life.”
But the project’s greatest strength--its size--also is its greatest drawback.
In the low-rise buildings, each floor is slightly smaller than a football field. They were designed to accommodate large office users such as call centers, insurance carriers and health-care providers, which require row after row of cubicles.
As a result, the site appeals to relatively few. The floors can be divided into units of about 20,000 square feet, nearly the same space as a typical high-rise, but corner offices cannot be created with the same prestige possible in vertical structures.
Moreover, a company’s presence can be overwhelmed by the project’s sheer size. Some of the buildings receive less sunlight than do newer competitors. And getting in and out of the nearly 6,000 parking spaces, especially around lunchtime, can be time-consuming.
But brokers consider the property a relative bargain at $1.85 per square foot a month, which includes utilities and other fees. That’s at least 40% lower than the average price for similarly priced properties in Orange County’s airport area, according to Grubb & Ellis Inc.’s first-quarter market report. Some brokers said the Fluor space will help slow down rental appreciation in the area.
“They’ll appeal to the price-sensitive user rather than the image-sensitive user,” said Al Masters, a vice president at CB Richard Ellis Inc. in Newport Beach.
Located in the shadow of John Wayne Airport, Park Place is surrounded by a building boom.
More than 2.5 million square feet of new office space is under construction in Orange County--the equivalent of seven Taco Bell corporate headquarter buildings--and nearly 7 million more square feet is in the planning stages, according to Grubb & Ellis. Two new office towers, the first in almost a decade, are expected to be completed later this year near the airport.
Half of Orange County’s office space is in the airport area--about 26.3 million square feet overall--enough to dwarf downtown Seattle.
The current market is driven by corporate expansion within Orange County, and to some extent, by companies moving into the county, brokers say. That contrasts with the go-go 1980s, when projects became monuments to developers’ egos largely because financing was available, rather than fill a need for space. At the peak, brokers were trying to lease 3 million square feet as new high-rises were rapidly built.
As the defense industry sank and companies left the state during the recession, vacancy rates soared above 20%. But as the region’s economy became more entrepreneurial, especially in the technology sector, and more diverse, the business climate improved. By 1998, vacancy rates had fallen to single digits.
Although some large tenants have vacated Orange County this year, a string of large leases has helped offset that. Fireman’s Fund filled 400,000 square feet in Irvine. Ditech.com is taking 110,000 square feet in Costa Mesa. PriceWaterhouseCoopers is expected to occupy 70,000 square feet in Irvine. And Ernst & Young reportedly has settled on 140,000 square feet in an Irvine tower yet to be constructed, brokers said.
Padia, like other leasing executives, can recall when leads from prospective tenants looking to move or expand in Orange County were weeks, sometimes months apart. But companies searching for new locations have been more active since the year began.
Several prized tenants currently scouring the market include Capital Group, a financial services giant that is searching for 400,000 square feet. Food manufacturer Hunt-Wesson is making inquiries on 250,000 square feet. And Seattle insurance giant Safeco Corp. is looking for 200,000 square feet, brokers said.
“Based on their location, and their amenities, (Park Place) will always be a consideration for a large tenant,” said Barry Gail, a principal at Cushman & Wakefield of California Inc.
Padia said that Park Place, without Fluor as an anchor, will be only 67% occupied. Padia lost a chance earlier this year to land a tenant that would have leased 350,000 square feet when the company decided not to expand to Orange County.
But she said several other deals are in the works. Winthrop is only a signature away from signing a tenant to occupy 100,000 square feet and is negotiating with current tenants, who want larger spaces that could occupy another 25,000 square feet.
“A lot of prospects are out there,” Padia said, “and that increases the probability we’ll get the building leased.”
In 1997, Fluor occupied 900,000 square feet at Park Place. As the company trimmed its work force and office space needs over the next two years, Padia filled 300,000 square feet of former Fluor space by inking several firms, including IT Corp., Caltrans and First American Title Co.
But with the largest block about to hit the market, Padia’s making a higher-profile leasing campaign.
New interior paint and carpet are planned. Brokers have been sent fliers to keep them mindful of the property, and humorous ads have been placed in newspapers and magazines (“Park Place announces the biggest space program since NASA”).
In addition, an 800-space parking garage is due to open next year. And a new signage program to make tenants more visible and help visitors find their way through the maze of buildings will be underway soon.
The moves, Padia hopes, will remind people that there’s more to Park Place than simply Fluor headquarters.
“I don’t expect the hole will stay there very long,” said Kevin Hayes, who heads Staubach Co., a Dallas-based company that represents tenants in finding and negotiating leases. “In the end, it’s very well-located, and when prospective tenants analyze it, it really is a quality environment.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Park Place Office Campus
Here’s a look at the Park Place complex in Irvine, which consists of six atrium-style buildings, a 10-story tower, and a single level concourse. The complex has been the corporate headquarters for Fluor Corp., but the construction and engineering giant is leaving at the end of this month.
Address: 3345 Michelson Ave., Irvine
Built: 1976 to 1981
Available space: 600,000 square feet
Cost: $62 million
Owner: Winthrop Management and Jamboree Center
Architect: Welton Becket
Amenities: 18-hole putting green, fitness center, barbershop, 1,500-seat restaurant and a full-service restaurant with a dozen private rooms.
Film credits: “Demolition Man,” 1993; “Defending Your Life,” 1991.
Prospective tenants: Insurance carriers, engineering or health care firms.
*
Fluor’s Floors
Fluor Corp.’s presence in the 1.8-million-square-foot office complex has dropped to less than half its highest point. Fluor space, in square feet:
1985: 1.4 million (78%)
1997: 900,000 (50%)
1999: 600,000 (33%)
Tight Spaces
Orange County’s commercial real estate market has grown substantially tighter in the last five years, particularly near John Wayne Airport. Commercial vacancy rates:
1994
Countywide: 17.7%
Airport: 16.6%
1998
Countywide: 8.4$
Airport: 6.5%
Source: Winthrop Management, Grubb & Ellis Inc.
