Suburban office space gets transformed

October 9, 2013

By THOR KAMBAN BIBERMAN, The Daily Transcript

The future of the suburban office market remains unclear, but repurposing the properties could make all the difference.

The evolution and the fate of suburban office parks from here to the suburbs of Washington, D.C., was the topic of the NAIOP's Development '13 this week at the Manchester Grand Hyatt in San Diego.

Frank Campbell, a managing director for the Southern California division of Equity Office, said that while suburban construction is at a fraction of normal levels nationwide (about 12 million square feet across the country), the number of obsolete suburban office buildings is only continuing to grow.

Alex Rose, Continental Development Corp. senior vice president of development, said he views the redevelopment of these aging buildings as an excellent opportunity.

Rose, who has redeveloped some properties that have been around for 50 years, said he thought that redeveloping an old, 3 million-square-foot facility that had held Hughes Aircraft into a suburban office complex called Continental Park would be problematic.

"Instead, it was just the opposite," Rose said, adding that his company also converted a former office space for aerospace company TRW in Torrance into a medical office property.

"It is right near a major medical center," Rose said.

Rose said the fact that these properties have large number of entrepreneurs makes them that much stronger.

"There's a big difference if you have a TRW or a Hughes Aircraft that comes up to you on a Friday night to tell you they are vacating 350,000 square feet, versus an entrepreneur who may be leaving 1,000 square feet," Rose said.

David Millard, principal of Avison Young Commercial Real Estate, said "we've seen tremendous changes in the past 25 years."

He also said the redevelopment and transformation of old properties into modern offices with modern technology has to be part of the equation.

That said, Millard added, the properties must be totally transformed.

"Sixty-one percent of the (office) buildings in northern Virginia area are 20 years or older," Millard said. "And younger people don't want the buildings their parents had."

Millard said suburban office developers are going to have to be very honest with themselves to succeed.

"You have to ask yourselves, ‘Would we want an office park here?’" Millard said.

Millard said the answer was “yes” for a 1.1 million-square-foot mixed-use development with office, retail and a daycare center just outside of Washington, D.C.

Tom Bak, a Trammell Crow Co. senior managing director, whose firm has developed no less than 60 million square feet of office space, said sites for new construction are becoming increasingly hard to find, and that it can take more than a decade to process a new project.

"It is a great time to do build-to-suits if you can find the land," Bak said.

Build-to-suits here include the more than 400,000 square feet Hines is developing for LPL Financial in the Westfield UTC area and the roughly 300,000-square-foot office building Cisterra Partners is developing for Sempra Energy (NYSE: SRE) in the East Village.

While build-to-suits continue to be built, Back said a major challenge with redevelopment is what to do with interior. The ratio of person-to-space is not only smaller, the spaces themselves are changing significantly.

"You have the elimination of the corner offices and you're putting them all in the middle of the buildings," Bak said. "The biggest changes we are seeing are a result of having worked with the office furniture and the architecture guys."

As for the state of the suburban office market as a whole, a lot depends on where the property is located.

"A lot of the suburban office product is stagnant in terms of vacancy," said Millard.

Back was a bit more encouraging about San Diego and Orange County, where he says the suburban office markets have fully recovered.

"Orange County's (suburban office) is about 99 percent recovered, and I could say that San Diego's is 103 percent recovered," Bak said.