The Disconnect Between OC Higher Ed and Tech Market

IRVINE, CA—College students graduating from Orange County's tech-oriented schools are moving to other markets because they're not being properly recruited and courted by local governments and organizations, JLL's VP Jason Lantgen tells GlobeSt.com. Jumping on this opportunity could help advance the market's position as a strong tech market that attracts young talent.

According to the firm's recently released national Tech Office Outlook Report, Orange County saw the 10th most tech funding volume in the US at $566 million from Q3 2015 through Q2 2016. The limited number of available large blocks of space in the most sought-after locations in the market creates a challenge for expanding companies; however, new office deliveries will help to lower the competition for space.

The report also reveals that the increasing number of local high-tech firms is adding new dynamics to the Orange County office market, including the growing inventory of creative space. Orange County is among the markets with clear advantage for growing technology companies with greater access to capital, higher concentration of innovation, great talent accessibility and an existing industry cluster.

In addition, new office developments and creative-space renovations are pushing up rental rates, limiting the number of space options for some startup companies. Although venture-capital funding remains high, investment firms are allocating more time toward due diligence periods, stretching out the time for investment rounds to close.

We spoke exclusively with Lantgen about the new deliveries and how the proportion of creative space to traditional office space could change as more local high-tech firms gain prominence in this market.

GlobeSt.com: Will new deliveries provide the type and amount of space tech companies are seeking in Orange County?

Lantgen: Orange County is different than most tech markets and what is considered a tech hub. Orange County in and of itself is absolutely a tech hub. It's very common for companies to do anywhere from 24- to 60-month leases, and traditionally they're on the shorter end of things. The challenge on new development: with the development of shell space costing $65 to $85 per square foot, owners are not going to want to deal with that type of lease. But these parties are going to ultimately have to agree on something, and tenants may be stuck with what's available. those buildings are asking rates significantly higher than second-generation or existing buildings.

GlobeSt.com: How will the proportion of creative space to traditional space change as more local high-tech firms gain prominence in this market?

Lantgen: The status quo of the last 25 to 30 years is gone. The difference between the new, modern space and the old space is absolutely going to increase. We're seeing class-B office with full-on redevelopments and conversions and some class-A as well, but it has more to do with the learning and collaborative styles of the new workforce coming into play. Look at how Gen-xers and Baby Boomers were educated and trained and taught in the school system through their first jobs. They were always doing their own work, and that's how they handled their productivity: they moved from a cubicle to an office with a door to a corner office, and they were always working by themselves. On the other hand, the younger workforce came from a different education style: they did group projects and presentations with other individuals, and there was a lot of interaction in the classroom. We're seeing that style transcend and move into office design because that's how they're used to interacting.

Also, there's a lot more mobile working. They need to be able to work with different groups simultaneously; they need different space and spots in the office to sit down and collaborate. The learning styles of the new workforce is something that's coming into effect, so we're getting more natural light and other effects that are the positives of this new workplace design.

GlobeSt.com: What could Orange County do to even improve it's already-advantageous position as a growing tech market?

Lantgen: There are probably two things Orange county could do specifically. First, the educational workforce in terms of school systems, the post-grad systems from college to the post-college MBA/PhD level—those colleges reside largely in Southern California. These students when they graduate are moving toward more urban-dense areas. The younger generation, as they grow, more suburban markets will be an attractor for that labor, but the fact that they already started here means we can capture them in an earlier stage. The driver for this is really within our local governments and local organizations and actually doing recruiting for those companies to establish a presence here. It's starting to occur, but it's a snowball effect. Everybody wants new job growth, but the only way to do it is by promoting your market and highlighting its strengths. Orange County's relative real estate costs are low compared to some markets, but wages for STEM grads here are low. There are not enough individuals meeting with certain groups to recruit them down to Orange County as a hub. We don't' have public transportation here, so the urbanization piece is a challenge for someone who wants to be mobile, and there's no incentive to take a chance and come to Orange County. From a cost standpoint, it's cheaper for a San Francisco tech company to move down to Orange County versus Austin, TX. Our state and local governments are not promoting themselves as well as they could and are not doing enough to save those lost jobs.

GlobeSt.com: What else should our readers take away from this tech report?

Lantgen: There's been a lack of exits, specifically in the IPO market. We will see a fair amount of M&A activity, which usually leads to subleases. Also, if we do see some form of a slowdown, in the we expect the more core, established markets to maintain some form of stability. Orange County is one of those, albeit smaller, where if there's a slowdown, I don't expect to see Orange County contract, consolidate or shrink. I think we will see more nominal growth—a flat, sit tight, tighten expenses mentality—before seeing true consolidation.

IRVINE, CA—College students graduating from Orange County's tech-oriented schools are moving to other markets because they're not being properly recruited and courted by local governments and organizations, JLL's VP Jason Lantgen tells GlobeSt.com. Jumping on this opportunity could help advance the market's position as a strong tech market that attracts young talent.

According to the firm's recently released national Tech Office Outlook Report, Orange County saw the 10th most tech funding volume in the US at $566 million from Q3 2015 through Q2 2016. The limited number of available large blocks of space in the most sought-after locations in the market creates a challenge for expanding companies; however, new office deliveries will help to lower the competition for space.

The report also reveals that the increasing number of local high-tech firms is adding new dynamics to the Orange County office market, including the growing inventory of creative space. Orange County is among the markets with clear advantage for growing technology companies with greater access to capital, higher concentration of innovation, great talent accessibility and an existing industry cluster.

In addition, new office developments and creative-space renovations are pushing up rental rates, limiting the number of space options for some startup companies. Although venture-capital funding remains high, investment firms are allocating more time toward due diligence periods, stretching out the time for investment rounds to close.

We spoke exclusively with Lantgen about the new deliveries and how the proportion of creative space to traditional office space could change as more local high-tech firms gain prominence in this market.

GlobeSt.com: Will new deliveries provide the type and amount of space tech companies are seeking in Orange County?

Lantgen: Orange County is different than most tech markets and what is considered a tech hub. Orange County in and of itself is absolutely a tech hub. It's very common for companies to do anywhere from 24- to 60-month leases, and traditionally they're on the shorter end of things. The challenge on new development: with the development of shell space costing $65 to $85 per square foot, owners are not going to want to deal with that type of lease. But these parties are going to ultimately have to agree on something, and tenants may be stuck with what's available. those buildings are asking rates significantly higher than second-generation or existing buildings.

GlobeSt.com: How will the proportion of creative space to traditional space change as more local high-tech firms gain prominence in this market?

Lantgen: The status quo of the last 25 to 30 years is gone. The difference between the new, modern space and the old space is absolutely going to increase. We're seeing class-B office with full-on redevelopments and conversions and some class-A as well, but it has more to do with the learning and collaborative styles of the new workforce coming into play. Look at how Gen-xers and Baby Boomers were educated and trained and taught in the school system through their first jobs. They were always doing their own work, and that's how they handled their productivity: they moved from a cubicle to an office with a door to a corner office, and they were always working by themselves. On the other hand, the younger workforce came from a different education style: they did group projects and presentations with other individuals, and there was a lot of interaction in the classroom. We're seeing that style transcend and move into office design because that's how they're used to interacting.

Also, there's a lot more mobile working. They need to be able to work with different groups simultaneously; they need different space and spots in the office to sit down and collaborate. The learning styles of the new workforce is something that's coming into effect, so we're getting more natural light and other effects that are the positives of this new workplace design.

GlobeSt.com: What could Orange County do to even improve it's already-advantageous position as a growing tech market?

Lantgen: There are probably two things Orange county could do specifically. First, the educational workforce in terms of school systems, the post-grad systems from college to the post-college MBA/PhD level—those colleges reside largely in Southern California. These students when they graduate are moving toward more urban-dense areas. The younger generation, as they grow, more suburban markets will be an attractor for that labor, but the fact that they already started here means we can capture them in an earlier stage. The driver for this is really within our local governments and local organizations and actually doing recruiting for those companies to establish a presence here. It's starting to occur, but it's a snowball effect. Everybody wants new job growth, but the only way to do it is by promoting your market and highlighting its strengths. Orange County's relative real estate costs are low compared to some markets, but wages for STEM grads here are low. There are not enough individuals meeting with certain groups to recruit them down to Orange County as a hub. We don't' have public transportation here, so the urbanization piece is a challenge for someone who wants to be mobile, and there's no incentive to take a chance and come to Orange County. From a cost standpoint, it's cheaper for a San Francisco tech company to move down to Orange County versus Austin, TX. Our state and local governments are not promoting themselves as well as they could and are not doing enough to save those lost jobs.

GlobeSt.com: What else should our readers take away from this tech report?

Lantgen: There's been a lack of exits, specifically in the IPO market. We will see a fair amount of M&A activity, which usually leads to subleases. Also, if we do see some form of a slowdown, in the we expect the more core, established markets to maintain some form of stability. Orange County is one of those, albeit smaller, where if there's a slowdown, I don't expect to see Orange County contract, consolidate or shrink. I think we will see more nominal growth—a flat, sit tight, tighten expenses mentality—before seeing true consolidation.