IRVINE, CA—Despite a contraction of space from the mortgage-lending industry in recent years, other industries are picking up the absorption slack in Orange County’s office market. Curtis Ellmore, SVP at JLL, tells GlobeSt.com that life-insurance and healthcare companies, as well as banks and financial firms, are taking up much of the space the mortgage industry has left behind.
According to a report from JLL, although the local economy has undergone a significant diversification a significant diversification process over the past five years, Orange County is as heavily tied to the mortgage-lending sector today as it has historically been. While, two years ago, many of these firms were aggressively expanding local operations, as GlobeSt.com previously reported—including Cash Call and Greenlight Financial, who each signed multiple expansion deals in 2012—today the growth that had been fueled by refinancing business stimulated by record-low interest rates has all but ceased. In fact, some tenants have begun to make payroll cuts and market space for sublease in response to the decrease in business. This includes Cash Call, which is currently working toward downsizing its 400,000-square-foot footprint by more than half.
“The contraction we’ve seen in the mortgage industry is not a scary thing; it’s more of a cleansing or right-sizing of where companies should be,” says Ellmore. “When interest rates were lower and mortgage origination was extremely high, mortgage companies were staffing up and taking more space to meet those demands. But as spreads on loans have increased and interest rates rose, companies have shed excess employees and are back to what we like to think are stable levels.”
The excess employees shed typically leave the larger companies and go to boutique or startup firms, Ellmore says. “They normally stay in the industry, but not with the big producers.”
Also noteworthy is some of the mortgage firms are giving back large blocks of space rather than small chunks. “In our market, tenant space is small and absorbed pretty quickly, but the bigger blocks don’t move as quickly,” says Ellmore. “But the market is healthy, and the bigger blocks are becoming a demand from other industries.” Some of these industries include banking, finance, insurance, healthcare and county or public functions in need of larger blocker of space.
Essentially, the shedding is nothing like what we saw in 2007—no bubble effect, says Ellmore. “We’re always going to have mortgage companies tied to this market and interest rates going up and down. We’re nowhere near the level of concern we had back then.”