Orange County Ranks Seventh for Office Space Conversion

Categories: Business NewsHealthcareNewsReal Estate & Properties

Urban development showcasing the conversion of office spaces into residential units in Orange County.

News Summary

Orange County has been recognized as the seventh-highest U.S. market for converting office spaces into residential developments, as noted in a recent CBRE report. With 26 projects totaling 4.2 million square feet under planning or construction, the trend marks a pivotal shift in commercial real estate. Notably, 19 of these projects involve multifamily conversions, including a substantial transformation in Santa Ana. This trend highlights the growing demand for residential spaces alongside the ongoing development of medical facilities, reflecting changes within the local economy and real estate landscape.

Orange County has been ranked seventh in the nation for office space designated for conversion or demolition into residential developments, as reported by CBRE on June 9, 2023. This marks a significant shift in the commercial real estate landscape, showing a national trend where more office spaces are earmarked for removal than addition for the first time since at least 2018.

The report highlights that Orange County is currently witnessing 26 projects, totaling 4.2 million square feet of office space, either planned or underway for conversion or demolition. In sharp contrast, only one project, named OCVibe, is currently in progress and aims to add office space.

Among the 26 projects, 19 are focused on multifamily conversions. A notable example is the planned conversion of a 111,483-square-foot office building at 2020 E. First St. in Santa Ana by Meritage Homes, which aims to transform the space into 86 townhome-style units. This reflects the growing demand for residential developments in areas with existing commercial infrastructure.

According to the CBRE report, the analysis encompassed 58 markets nationwide, projecting that by the end of 2023, 23.3 million square feet of office space will be set for conversion or demolition. The leading city in this regard is Manhattan, which has earmarked 10.3 million square feet for such changes, amounting to 2.5% of its overall inventory. Following Manhattan, other major cities include:

Washington, D.C. – 9.2 million square feet (2.7%)
Houston – 6.7 million square feet (3.2%)
Chicago – 4.8 million square feet (1.9%)
Dallas-Fort Worth – 4.4 million square feet (2%)
New Jersey – 4.2 million square feet (2.8%)
Orange County – 4.2 million square feet (4%)
Atlanta – 3.6 million square feet (2.4%)
Phoenix – 3 million square feet (2.8%)
Cleveland – 2.8 million square feet (8.4%)

In addition, there is ongoing development of the Newport Irvine Center project, which involves converting a 78,000-square-foot office building in Newport Beach into a medical outpatient facility. This project has received unanimous approval from the Newport Beach Planning Commission as of January 2023. The renovation is set to start with the breaking ground on a new parking structure in June, followed by building renovations in September 2023. The completion date for the Newport Irvine Medical Center is anticipated by spring 2026, with plans for medical tenants to move in by summer.

The property, originally built in 1980, is strategically located at 3300 Irvine Ave., near John Wayne Airport. Archer Property Partners and Real Estate Development Associates acquired the building for $18.5 million in 2023. The redevelopment will feature a new three-story atrium, enhanced common areas and elevators, as well as provisions catering to a variety of healthcare practices.

Market trends suggest that the inventory of medical office buildings is expected to grow by 10.6% over the next five years, primarily driven by the aging population, despite the backdrop of economic uncertainty. Newport Beach, notably, has a low medical office vacancy rate of less than 5%, indicating a strong demand for such spaces, particularly for options larger than 5,000 square feet.

This movement toward converting office spaces into residential or medical facilities signals a broader transformation within Orange County’s economy and real estate market, as stakeholders seek to meet the evolving needs of the community.