How Does OC’s Economy Compare to the Last Cycle Peak?
A new report from JLL reveals the differences between 2007 and 2019 in Orange County.
“Local economic growth in the years leading up to and through 2007 was heavily weighted on financial services, specifically the mortgage industry which experienced much of its growth from subprime mortgage companies,” Jared Dienstag, research manager at JLL, tells GlobeSt.com. “Many of these companies were experiencing tremendous growth requiring them to keep hiring more and more employees. In fact, this growth impacted new office development with developers confident they would be able to lease up the space. The fast pace growth of the mortgage industry also led to expansion in construction activity, due to the high volume of new home, office, and retail development. Current economic growth is significantly more diversified than in 2007.”
In 2007, because financial services dominated the market and therefore the office sector, when those companies collapsed, it had a crippling impact on the market. “During the previous cycle, it was very common for mortgage companies to quickly expand their office footprints in order to keep up with their hiring sprees, with many of these space expansions being very significant,” says Dienstag. “Because these companies were leading occupiers of office space and grew so quickly, the market crashed when many of these firms and other related companies went out of business with landlords unable to backfill the vacant space. This practice would not be as risky if it was performed at lower levels.”
Today, the market is expanding in multiple sectors, adding strength and job diversity compared to 2019. “The Orange County economy is expanding from several angles including tech, life sciences, healthcare, ecommerce, and professional/business services,” says Dienstag. “While the construction industry is also growing during this cycle, the growth is a steadier pace than in 2007.”
As a result, the Orange County market is stronger today than it was in 2007. Industry diversity and general economic growth have helped create more stability in Orange County. “The current office market is being driven by tenants from a wider spectrum of industries; some of the larger 2019 leases include Ambry Genetics (life sciences), Alteryx (tech), Epson America (tech), and TGS (finance). The local industrial market has also benefitted from the current economic expansion. As ecommerce continues to heat up, demand for warehouse and distribution space grows as well,” says Dienstag. In 2019, online retailers and supply chain facilities accounted for 90% of new big box leasing activity. Additionally, the current Orange County employment base of 1,693,200 is the largest on record, and 158,400 higher than the end of 2007. The growing labor base plays a key role for the commercial real estate market to experience sustainable growth.”