According to JLL, first-quarter tech investment activity grew 22.5 percent in Orange County compared to 12 months ago, and over 80 percent of the OC companies that received funding in the first quarter are located in Irvine, California. The majority of the Q1 capital was placed in OC software companies, specifically firms whose client bases are businesses, rather than general consumers.
SoCal Real Estate spoke with Jason Lantgen, VP at JLL, about the factors affecting OC’s tech sector and why Irvine is attracting so many of these companies.
SoCal Real Estate: How did Irvine emerge as a tech cluster for Orange County?
Lantgen: When representing technology companies in Orange County, we typically don’t look at Irvine as a city, in the sense that it is split between two separate submarkets, the Airport Area and South County (think Irvine Spectrum area).
The Total Orange County Office market has roughly 97 million square feet of product. The Airport Area, as the largest, consists of 42 million square feet, of which 57 percent is in the Irvine portion of the Airport submarket (24 million). The South County submarket represents 21.5 million square feet of product, of which 47 percent is in Irvine (10 million). The remainder in South County is dispersed from Foothill Ranch to Aliso Viejo and down to San Clemente.
In short, our tech clients have rapidly changing needs. Being located where there is a density of office product is important to them so, as their real estate needs shift, they are not disrupting their culture and are mitigating employee drive times as best as possible. Regardless of submarket, Irvine has been positioned to do that. Also, Irvine has a fantastic public-school system, something that is critical and not often mentioned in the war for talent, as well as an exceptional higher-education system in University of California, Irvine, which, along with the other top-tier institutions in the region, anchors the region as a creator of skilled workers.
What are the attributes of this submarket that make it ideal for this type of cluster?
The ample amount of supply and proximity of the office product to housing, great schools, freeways, and amenities, regardless of submarket, make Irvine a hub where employees won’t be impacted if a company’s growth requires the office to shift between the two most prominent submarkets. Also, as the unemployment rate has continued to decrease, proximity to University of California, Irvine, and the Spectrum is critical for two reasons: 1) University of California, Irvine, is graduating the skilled workforce of tomorrow that drives the ecosystem, and 2) the Spectrum and South County submarket is where the “aging” Millennials are migrating, which has been spurred by relatively affordable new-home development in areas like the Great Park, Baker Ranch, Rancho Mission Viejo, etc.
Is tech investment likely to spread to other OC submarkets, and if so, which are likeliest to emerge?
We do expect tech investment in Irvine to continue, as well as spread to other areas. The areas we are continuing to watch are Aliso Viejo, which has regularly seen investment with OCTANe and TechSpace there, but we are also expecting continued growth, specifically in Newport Beach and Orange. Newport Beach, while costlier, is within close proximity to University of California, Irvine, a highly skilled workforce, and young professionals. Orange has similar dynamics on the other side of the county, with Chapman University anchoring that market.
What else should our readers know about Orange County’s tech sector?
While having evolved over the years, the technology sector in OC is as diverse as any in the country. The defense and aerospace that was established here decades ago was due to the high concentration of engineering schools and subsequent pool of qualified talent in the region. From there, the labor force pivoted towards semiconductor (Broadcom, Emulex, and Microsemi), gaming (Blizzard), software (Quest Software), and life sciences (Edwards, Allergan).
We are seeing another evolution occur, as highlighted by what has been funded over the last three to five years. Software continues to be very strong, with cybersecurity and, more specifically, AR/VR leading the way. Blizzard has acted as a magnet for other gaming companies to migrate to the region and also helped give way to the rise of eSports.
Lastly, Orange County’s unique position at the epicenter of Southern California (one hour from L.A., the Inland Empire, and San Diego) means employers have access to roughly 18 million people within a 75-minute drive. JLL data illustrates that Orange County has a “commuter surplus” — in other words, more people commute into Orange County from each adjacent county rather than the other way around.