Irvine Research Park Hit by Tech Slump
The technology slump and a glut of office space in south Orange County are taking a toll on University Research Park, an ambitious $300-million effort led by Irvine Co. to grow a campus for high-tech firms on 185 acres next to UC Irvine.
Cisco Systems, which became an anchor tenant after moving a research team into the park, scrapped plans to lease a second building. Star recruit Conexant Systems Inc., awash in space as it slashes 25% of its work force, abandoned plans to occupy one of the park’s two dozen gleaming two-story buildings. Now, the communications chip maker is looking for a tenant to sublease the empty 63,000-square-foot structure.
After a promising start, the number of companies at the park has virtually leveled off since last July. In addition to Cisco and Conexant, four other tenants have departed or scrapped leasing plans, some of them among the ranks of disappearing dot-com outfits.
But Irvine Co., which has been leading the drive the last four years to recruit technology tenants to the park, continues to add more space, erecting six buildings that should be ready for occupancy this fall. Unlike previous phases, when many buildings were leased before they were built, no tenants have been lined up.
The building spree, at a time when there is a glut of office space driving down rents in Orange County, raises concerns that the park’s original mission--mingling technology firms’ top talent with professors and students to spawn new technologies--might become blurred in the push to fill vacant offices.
“This is where the rubber meets the road,” said a former Irvine Co. official who asked not to be identified. “Do they freak out and put some company in there that has nothing to do with the university, or do they stick with it?”
“It’s a hard thing to balance,” acknowledged Dawn Tramontana, who became director of research park relations in December. “They [Irvine Co.] have tried to keep in mind what we are looking for. But they’re also very much wanting to lease the space.”
Irvine Co. remains committed to the park’s original concept, said Clarence Barker, president of the developer’s investment properties group. In fact, all prospective tenants for the park must be reviewed by a university panel--although it has yet to reject anyone.
Officials for the developer also acknowledge that it could take some time to line up tenants for the new buildings.
“Right now, I’m not worried,” Richard Sim said before retiring in June as president of Irvine Co.’s investment properties group. “If they’re not rented this time next year, I’d be worried.”
The effort to transform the 185-acre site into a high-tech hub anchored by prestigious tenants is patterned after dozens of other university-linked parks that have helped spawn major tech areas.
Stanford Industrial Park is home to Hewlett-Packard Co. The Massachusetts Institute of Technology incubated Lotus. Dell Computer Corp. was formed around the University of Texas.
And before the technology slump kicked in, the research park in Irvine had attracted numerous tenants willing to pay premium rates to secure coveted space. A year ago, 22 companies with 2,000 or so workers occupied the park’s beige and white buildings.
In the last year, however, growth has been in fits and starts, held back by departures such as Struxicon Inc., which developed Web sites for the construction industry. Gazelle Lab, a planned incubator that leased 15,000 square feet of space to help launch new businesses, folded before moving in.
Now the park has 25 companies with about 2,500 employees. Two more companies, including Axcelerant Inc., are scheduled to move in this summer.
The completed portions of the park are 93% leased, a higher rate than the market for similar space throughout the region, Barker said.
But that doesn’t include space that has been leased but is vacant, such as the Conexant site. Indeed, more than 100,000 square feet of park space--the equivalent of about two two-story buildings--is on the market for subleasing, said Barry Gail, director of the commercial real estate firm Cushman & Wakefield in Irvine.
Irvine Co., facing sluggish demand, last month slashed rents as much as 20% for some of its office space in the region and has lowered the asking price for research park space that was commanding a premium of as much as 10% a year ago.
“The market today obviously isn’t what it was a year or two ago,” Barker said. He declined to reveal going rates at the park, but brokers familiar with the property say the firm is asking about $2.45 a square foot. The Conexant space is listed at $2.05 a square foot.
In south Orange County, where vacancy rates have mushroomed to nearly 20%, offices are renting for $2.35 a square foot, according to a survey by Voit Commercial Brokerage.
The park’s current buildings--configured for large tenants that would rent at least a quarter of a building--are viewed as another drawback, a barrier to research-based start-up companies that might spring from the ranks of UC Irvine’s faculty.
“I knew start-ups that wanted to come in, but the problem is the spaces were too large,” said James Fallon, UC Irvine professor of anatomy and neurobiology who was active in the planning of the park and serves on the university’s research park review committee.
Irvine Co. intends to address that, configuring one of the new buildings to accommodate a larger number of tenants.
Other barriers to the research park’s momentum are more mundane.
Although it is intended to serve as a catalyst for collaboration between the private sector and the university, tenants say the research park’s physical design does not lend itself to such a goal.
Outdoor benches are few and far between, and there’s no common social space or conference room in the park. The university’s cafeterias are a car ride away, and after three years there is still not so much as a place for tenants to buy coffee on site. One coffee kiosk closed down after a few months, but Barker said he is close to finalizing a deal on a cafe with Internet hookups.
None of the gripes dampen Kevin Daly’s enthusiasm, however. Daly, chief executive of data storage provider Quantum ATL, expanded from one to three buildings in December. About 450 of the company’s 650 Orange County employees now work in the park.
Although Quantum’s closest ties are to the engineering school, the firm has hired interns from the school’s communications department and been involved in student research projects from the business school.
Daly estimates the company’s rent tab for the park is 5% to 10% higher than it would be in some other areas. But after more than a decade in Massachusetts observing the close ties between MIT and several technology companies, he is a believer.
“It always sounds really squishy, but the most significant thing we get out of this relationship is living in a community that has an academic attitude as well as a business attitude,” he said. “It puts you in contact with people that think differently, that ask questions differently, that view technology differently. And that’s very healthy.”
