After two years of uncertainty, Orange County employees are returning to the office.
That’s good news for tenant-improvement contractors, as landlords and companies seek to spruce up their space to attract and maintain their staff.
“There’s a lot of office work on the books in Orange County,” said Esplanade Builders CEO Christian Sorenson, whose firm works with large area landlords including Irvine Co.
“Local landlords are hitting the mark for what tenants want by building low-rise, campus-style buildings,” Sorenson added. “That’s why the OC market is strong and is outpacing markets like Los Angeles where high rises are the norm.”
This employee return has also helped offset some renewed industry headwinds like inflation and longer lead times for materials, which has prompted some clients to be conservative in their renovation or redevelopment plans.
“It’s a very expensive time to be in the construction industry,” said RBA Inc. CEO Bob Anderson.
Still, local firms enjoyed a return of industry gains in 2021 after seeing business drop 12% in 2020.
Orange County’s top 25 tenant contractors saw a 1.3% increase in business last year, reporting $1.3 billion in total billings.
That’s still below pre-pandemic levels—2019 brought a nearly 30% jump in business over 2018—but last year’s return of consumer confidence struck an optimistic tone for local firms.
“Surviving 2020 was a feat unto itself,” said Anderson, whose Huntington Beach firm saw a boost in business last year to $33 million, good for No. 13 on the list.
Including No. 8 Esplanade and RBA, 15 companies on this week’s list saw their business grow in 2021, up from just seven in 2020.
The Right Product
Though total OC office vacancy climbed to 16.2% in the first quarter of 2022 from 15.9% the year prior, some submarkets are enjoying a faster return as part of a “flight to quality” trend that has persisted since the onset of the pandemic.
This is especially true in the Spectrum submarket of Irvine, where Irvine Co. has found success in securing tenants for its newest area office campuses.
“New construction has been well-received, given the full leasing of the first and second phases of Spectrum Terrace,” according to a report from the Irvine office of Newmark. “The first phase of Innovation Office Park delivered last year and is currently 53% leased.”
A big portion of Esplanade’s local office work stems from contracts with Irvine Co., which includes tenant buildouts at Spectrum Terrace and Innovation Office Park.
“That is the right product for what tenants are looking for: highly amenitized, new office campuses,” Sorenson said.
In addition to office work, Esplanade is staying busy and mitigating market uncertainty by investing in industrial work in OC and the Inland Empire.
“We are keeping a close eye on the economy, which is in part why we are putting so many eggs into the industrial basket,” Sorenson said. “Pricing for materials and equipment has increased drastically, and then you add on labor shortages and competition…it’s a challenging environment.”
Big Demand for Small Work
Those headwinds have led to some industry consolidation, Anderson notes.
“It has weeded out some of the smaller contractors, which I don’t think is a positive thing for the economy,” Anderson said. “Clients with small work are having a heck of a time finding anyone that will call them back. Many of those contractors have gone out of business.”
RBA said it has taken on more one-off jobs or smaller maintenance projects to help fill this gap.
“We have a division that handles smaller work, called special projects, which I think is going to get busier and busier in the next few years.”
The return of tourism and hospitality has helped bolster business for RBA, which counts large OC theme parks among its roster of clients.
The biggest boost on the list was seen at Morris Construction, one of two newcomers to this year’s list, which saw business surge 174%.
The firm primarily focused on healthcare contracts when it got its start in 2012, but started diversifying into different sectors in 2017, including life science, manufacturing and automotive facilities.
“Diversifying and balancing out our portfolio has really paid off for us,” President Chris Morris said.