Space occupied by the tenants Oculus and Acorns at Newport Gateway in the Airport Area of Irvine, California | Images courtesy a representative of JLL

Are OC’s Tech Submarkets in Danger of Oversaturation?

Carrie Rossenfeld Office

A recent report distributed by a representative of JLL shows that while all tech startups are spread throughout Orange County, most of these newer companies in the region call either the Airport Area or Irvine Spectrum home. The report, based on information from JLL Research and Crunchbase, also finds that Airport Area startups have raised $195.2 million compared to the $152.2 million raised by their Irvine Spectrum counterparts and that the two submarkets account for 91 percent of startup funding in Orange County.

SoCal Real Estate spoke with Scott Wetzel, VP of JLL in Irvine, California, about this phenomenon and whether the two submarkets are becoming oversaturated with tech tenants.

Scott Wetzel | Courtesy a representative of JLL

SoCal Real Estate: Are the Airport Area and Irvine Spectrum submarkets of OC becoming oversaturated with tech tenants?
Wetzel:
Unlike San Francisco or Silicon Valley, the tech sector has not oversaturated the Orange County market. And even in those archetypal tech markets, I’m not sure you could say they’re “oversaturated” since tech is their life blood.

Orange County has historically been a less-diverse market. The sub-prime mortgage crisis, S&L bust, aerospace downturn, etc., all left Orange County in a very vulnerable state, but over time the business industry has organically diversified, with help from a well-educated labor pool, high quality of life, and also the “techification” of various businesses. New-age mortgage companies also have a fintech or proptech component to their business that allows them to diversify income streams and capitalize on the wealth of information they collect. Healthcare companies have increasingly presented online platforms for patients and doctors. Real estate companies are using analytics and big data to quantify market conditions and apply a little headiness to what this developer or that broker is feeling in their gut. Tech is now part of every industry vertical.

What would indicate a saturation point for these areas?
As seen in the tech startup chart pictured here, market saturation can be identified by the number of new companies that emerge in a particular area. As seen in other prototypical markets like Seattle or Silicon Valley, when a big company emerges as a dominant player, it magnetizes other companies to that area. Some are started by former employees of the 800-lb. gorilla that want to try their hand at making it big, while others intentionally seek out that area, similar to how Burger King consistently moves across the street from every new McDonalds that pops up.

Is there indication that other tech hubs are emerging in OC?
Technology is beautiful for two main reasons, amongst others: it democratizes information and allows people to be more mobile. In this environment, we are seeing new areas start to emerge, such as Central County. It will be slow to gain momentum, but the presence of Chapman University, ample affordable housing, public transit, and an increasingly strong cultural and experiential retail base are all positive factors that will help Central Orange County increase its tech presence. As coastal housing gets increasingly more expensive, and the millennial generation ages, those seeking the American Dream will look east to find a home, build a family, and build a business. With freelancers and entrepreneurs increasing every decade, this will allow a new type of tech hub — maybe a smaller, more frenetic, and decentralized one — to find its place amongst the Blizzards and Broadcoms.

What else should our readers know about this topic?
Orange County will always be a two-headed dragon. The Airport to the north is too dominant a factor for the Spectrum to completely overtake Orange County as the sole center of tech and commerce. While institutional investors may wish Orange County had a clear leader, the benefit will likely inure to the local resident, the local business, who will have increased optionality and balance as the two major submarkets trade punches.

This time last year, tech funding for VC companies was nearly $72 million. As of now, it is over $180 million. The increase testifies to the tech sector gaining traction in Orange County.