Orange County’s financial services industry is turning out to be the silver lining in this downturn. In 2008, the market’s overexposure to mortgage companies caused a major disruption to the office market. This time, the industry is driving leasing activity.
Research from JLL shows the financial services industry is responsible for 27% of large block leasing activity this year. Mortgage companies have benefitted from increased refinancing business due to low interest rates, and they are expanding. “The bulk of mortgage company business is in refinancing. When interest rates are low, people are refinancing constantly, and that is the driver behind the growth in business,” Jeff Ingham of JLL tells GlobeSt.com. “The mortgage markets froze at the beginning of the pandemic, but once interest rates dropped, people started refinancing. Now, we are truly benefitting from it.”
This business is also driving some office space expansion for mortgage companies. “Mortgage companies are taking a lot of sublease space because they can get in quickly,” says Ingham. This has helped to offset the growth in sublease supply, which stabilized in the fourth quarter after several months of growth.
The financial services industry is still a dominate presence in Orange County’s office market, but job diversity has improved tremendously in the last decade. “The Financial Crisis in 2008 was driven by financial services firms, and we were heavily weighted in financial services firms,” says Ingham. “That has fallen off tremendously since then. We have become much more diversified with other industries, like technology and healthcare. Those industries have grown tremendously.”
Although financial services firms have helped to drive activity during the pandemic, there is still uncertainty about the future of the office market. In addition to remote work policies, which have the potential to reduce office user demand, many firms are also looking at more affordable options and following population migratory patterns out of California. “There are a lot companies looking to move out of California right now; a lot more than before the pandemic. We are also seeing a lot of executives looking to move out of California,” says Ingham. “That is the overall theme that we are seeing throughout California.” Most companies are moving to escape high taxes in the state and in responses to business and school closure policies during the pandemic.
Looking ahead into next year, Ingham has a positive outlook, expecting continued job growth and a return to offices once the vaccine has been distributed. “Most of our clients have a positive long-term perspective. Companies are seeing the light at the end of the tunnel, and for a lot of companies, the light at the end of the tunnel is next summer,” he says. “I don’t see any increase in unemployment for office jobs this year. In fact, we still have a lot of clients that are hiring into this year and adding jobs in some instances. I think the worst is behind us.”