Our region’s economy is vibrant, and in spite of its length, the current cycle hasn’t shown signs of stopping as our market fundamentals continue to stay strong. According to our firm’s 2020 outlook, we expect tempered growth in our commercial real estate market this year and while there might be a slowing on a few fronts, we are still in expansion mode with a robust job market, solid consumer confidence and low interest rates. In addition, and very importantly so, we are the primary beneficiary of what has been dubbed the streaming wars.
Content is truly king today. Submarkets that are home to tech, media and entertainment continue to outperform others in LA. Aside from the big household names that are taking up large blocks of office space, we are seeing a trickle-down effect to smaller players and ancillary businesses that support the industry. This was particularly evident in the fourth quarter, where smaller transactions – about 20,000 square feet or less – dominated the landscape. Everybody is benefiting from this trend, whether it’s production or post production companies, advertising and public relations firms, or catering services.
This has led to positive absorption for the ninth year in a row in Greater LA at 1.2 million square feet at the end of last year, according to our research. Overall vacancy is the lowest since 2016 at 13.9 percent across the region. Seven submarkets boasted asking lease rates above $5 per square foot per month at the end of last year, including Hollywood, Beverly Hills and Century City, plus some of the other west side markets.
But while content is king, so is talent. Our thriving economy and our abundance of great universities continue to provide an ongoing stream of high-quality workers, and employers are eager to attract and retain this top talent. According to studies, our region boasts 113 institutions of higher learning with 1.15 million students pursuing a degree. That means Greater Los Angeles ranks as the U.S.’s second-largest college town after New York City.
This war for the brightest workers as well as tight labor markets have started to create a slow but steady eastward movement away from the popular beach-side submarkets. While employers have long chosen their locations based on the homes of their executives, we are seeing a noticeable change. Firms are increasingly looking to plant their flags in proximity to where the vast majority of their employees live and might be commuting from.
That in turn is opening up submarkets that already are or soon will check a lot of the live-work-play boxes. Arguably, one of the most exciting and promising will be Inglewood.
The current development of Hollywood Park marks one of the country’s largest projects, and it is likely to transform the area and larger region with its more than one million square feet of office, over 500,000 square feet of retail, 2,500 residential units, a 300-room hotel, 25-acre park and outdoor recreational space, plus more. And all that adjacent to one of the most technically advanced modern-day sports venues, SoFi Stadium, which will host the 2022 Super Bowl, 2023 College Football Playoff National Championship, 2026 FIFA World Cup and the 2028 Summer Olympics, and it will be home to the NFL’s Rams and Chargers.
Other neighborhoods are already benefitting from the strength and eastward migration of live-work-play demand, including Hollywood, Downtown LA and the Tri Cities.
Downtown – with its ever-increasing supply of new housing, large amounts of available office space, and a growing amenity base – continues to evolve into a serious contender in the fight for quality tenants. In addition to its extremely popular Arts District neighborhood, adjacent areas, such as Boyle Heights, Frog Town and Lincoln Heights are promising similar potential. Jeff Worthe and Blackstone’s acquisition of the Former Forever 21 headquarters property in Lincoln Heights encompassing 39 acres will be one of the projects to keep an eye on in the coming year.
Given our strong economy coupled with the far-reaching effects of the streaming wars and a continued influx of investment money – Los Angeles County boasted the highest sales volumes in 2019 of any U.S. market with more than $28 billion – the prospects for this region this year are strong. That in turn will continue to open up markets to the east that stand to benefit from this thriving activity.
R. Todd Doney is Vice Chairman for CBRE.