O.C. Economy on a Growth Spurt, Report Finds

An economic resurgence predicted for Orange County at the start of the year has become a full-fledged growth spurt that should continue for the next several years, according to economists at a major real estate consulting firm.

“This is the first time in six years we can sit here with a lot of optimism about the economy,” said Michael Meyer, managing partner of the Newport Beach-based E&Y; Kenneth Leventhal Real Estate Group.

Job formation is the key indicator of an economy’s general health, and in Orange County almost all of the 57,000 jobs lost in the recession of 1991-93 should be recovered by the end of the year, the report says.

Job growth should continue at a healthy pace--other forecasts have suggested a 2% annual growth pace--for several years, the E&Y; report says.

Although heavily oriented to the real estate markets that the firm serves, the report says that the service industry--primarily technology and medical research, health care and general business services--has become the principal economic driver in the county.

The old standbys of manufacturing and real estate development remain strong but are lesser legs of the economic tripod that supports job formation in the county, said consultant Philip Crothers, a co-author of the report.

Growing technology and trade-related employment is the cornerstone of the economic recovery, he said.

Overall, the E&Y; report supports the slow but steady growth scenario sketched in earlier Orange County and regional forecasts.

Development, although expected to be a significant piece of the economic jigsaw puzzle for years to come, is decreasing in importance simply because the amount of land available for construction is shrinking. One benefit, however, is that land and home prices--severely depressed in much of Orange County after a six-year economic slump--are climbing again.

The appreciation--which Chapman University economists said earlier this year should average about 1.4% for 1996--is being driven largely by pent-up demand for housing after a six-year building slump, Meyer said. Builders aren’t expected to catch up with demand for years, if at all. And if they do, their activities will have further reduced the supply of raw land--which should help keep prices propped up.

Although housing is leading the resurrection of the development industry, the long-moribund office and industrial markets should start showing signs of life in the next year, the report suggests.

A surge in office construction is unlikely, but rents already are rising at top-of-the-line office complexes in preferred areas such as Newport Beach and Irvine, and vacancy rates should start coming down all over the county, Meyer said.

The industrial market is a little stronger, with several buildings under construction in South County, Crothers said. With almost 75% of new-home sales in the county occurring south of Irvine, businesses finally are starting to see the industrial and office parks there to be close to a work force that until now has been concentrated in the north and central parts of the county.

Interest rates are the key to both a housing industry recovery and a healthy economy, and the E&Y; forecasters believe that the Federal Reserve Board “so far” has stuck with policies that will keep rates reasonable and inflation down, Crothers said. The board sets the discount rate at which commercial banks borrow money and on which most other interest rates, including commercial loans and credit card and mortgage rates, are based.