Q2 2012 Orange County, California Commercial Real Estate Economy

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Q2 2012 Orange County, California Commercial Real Estate Economy

Significant signs of strength have appeared in the Orange County economy as a broad base of major industry sectors churns out substantial job growth numbers—despite the state’s severe budget crisis and the large numbers of related job losses suffered by Orange County public sector employment, a persistent problem, and by ongoing attrition in the construction segment.

Taking the lead over the past year has been the county’s large Leisure and Hospitality segment (Disneyland, for example, is located in Anaheim). According to the U.S. Bureau of Labor Statistics (BLS), preliminary data for July show employment in this sector up 5.1% (8,900 jobs) from 12 months prior. The Professional and Business Services sector, ravaged by the latest recession, added 8,200 jobs over the same 12-month span for a growth rate of 3.3%. Employment in Manufacturing, with its large high-technology component, was up 0.8% (1,300 jobs) according to preliminary estimates for the July-to-July period, but was up 2.9% (4,400 jobs) over 24 months. Even the Financial Activities sector—ground zero for the recession and the housing-market collapse as a result, in part, of the county’s large mortgage-lending business base—has seen the return of net job creation, up 1.8% (1,900 jobs) in July compared to 12 months prior according to preliminary estimates. Thus even with the continuing losses in the Government and Construction sectors, BLS preliminary data as of July indicate a 2.0% (27,400-job) increase in total non-farm employment over the latest 12-month span. The gain over 24 months was 3.1% (41,300 jobs). Indeed, while many of the nation’s local economies saw their job growth rates slow in 2012, Orange County’s to date has increased.

Cutting the other way, however, the possibility of cuts in defense spending could drop some rain on the recovery. A case in point, as reported by the Los Angeles Business Journal in May, is the defense-related business engaged by The Boeing Company at facilities throughout Southern California. The firm is “preparing for the ‘distinct possibility’ that U.S. defense spending will be cut by a total of $1 trillion over the next decade,” stated this source referencing a report from the Chicago Tribune. All the same, however, the firm has continued to land contracts, including a $340 million deal from the U.S. Air Force, this source reported in June.

The local housing market has suffered large declines in values and high rates of foreclosure—although not as high as many other California metro areas as the state’s cities continued to lead the nation in rates of foreclosure as of July. Persuasive signs of improvement, however, recently have emerged in the county market. An August report in The Orange County Register cites “a home buying spree in all corners of Orange County.” All told, adds the report, sales countywide during the first half of 2012 were up 11.3% from a year earlier. The median selling price for all first half 2012 transactions, meanwhile, was $420,000, down 1.9% year-over-year.

There’s good news from the residential construction front as well, as developers initiate new projects. “A positive sign is emerging for the housing market,” according to a prepared statement released in August by Meyers, a Kennedy-Wilson Company. “[H]omebuilders are feeling more confident today than they have for the past five years.” Accordingly, The Associated Press (AP) reported in June, Toll Bros. Inc. is planning to develop 2,400 homes in seven communities on about 400 acres in Lake Forest (South County). A spring 2014 opening is planned for the first phase. According to the Orange County Register as related by AP, “At least 20 new neighborhoods are planned, along with several parks, trails and 25,000 square feet of commercial space.” New home construction is also in the works at the Tustin Legacy master-planned development on what was formerly a Marine Corps air base.