A backlog of commercial and industrial projects in the pipeline and pent-up demand for housing is keeping L.A.'s construction industry busy at least for the time being. But officials in the industry are cautious, as home sales begin to decline and economists warn of the possibility of an oversupply of retail space looming on the horizon.
Two huge projects, the Cathedral of Our Lady of Angels downtown and the 1.8 million-square-foot distribution center at the Port of Los Angeles, are major sources of construction employment for the time being.
"We're keeping busy," said Marshall Goldblatt, assistant business manager of the 6,500-member International Brotherhood of Electrical Workers, Local 11. "If anyone wants to work in our local, they can work, and they don't have to travel."
A total of 4,321 housing permits were pulled in January and February, a 94 percent increase over the same period last year, according to the Construction Industry Research Board.
"We're continuing to find strong market demand, and we're continuing to build," said Ray Pearl, executive director of the Building Industry Association of Greater Los Angeles. "There's a lot of pent-up demand, and low interest rates are allowing people to look at homes they normally wouldn't be able to afford."
Commercial developers, on the other hand, pulled permits to develop $635.4 million worth of office, retail, industrial and other nonresidential projects in the first two months of the year, a 19 percent increase over the same period last year, according to the CIRB.
Ben Bartolotto, the CIRB's research director, said the numbers might be somewhat deceiving. They were likely inflated by a rush on permits that occurred in January when developers tried to beat an increase in permit fees in Los Angeles.
"It still tells me there's an awful lot in the pipeline, especially in the city of L.A.," Bartolotto said.Major projects underway
Indeed. Greater Los Angeles has several major commercial and industrial projects in the works that the local trade unions say should keep them busy for the rest of the year.
"Everyone is still experiencing very good employment," said Richard Slawson, executive secretary of the Los Angeles/Orange County Building & Construction Trades Council.
Slawson noted that several oil refineries and power plants are undergoing upgrades. Work is also underway on a 575,000-square-foot retail center at the historic Farmers Market in the Fairfax District.
A planned 34-story high-rise in Century City, dubbed Constellation Place, is expected to get underway, and there's still plenty of work left on Disney Hall and the new downtown cathedral.
"We may see some slowing, but I just don't think it's going to slow as much in Los Angeles as other parts of the country," Slawson said.
But there are signs of slowing locally.
Home sales in Southern California declined 9.6 percent in February, compared with the same month last year, and economists are concerned about an oversupply of retail space as discounters such as Wal-Mart and Target make a big push into Los Angeles.
"Retail is one sector you really have to bite your fingernails over," said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.
Developers have to be much more cautious in choosing the right projects, given the glut of retail space. Grocery/drugstore combinations are still strong, but it would be tough to get financing for yet another entertainment-related complex.
"Whenever there's overcapacity, you have to pick your markets very carefully," said Rick Caruso, founder and president of Caruso Affiliated Holdings, whose niche is high-end retail projects where there are significant barriers to entry, such as choosy neighbors and a lack of developable land.Conservative approach
Ron Rasak, president of RKR Inc., agreed that developers have to be much more conservative in this environment.
His company is building a 185,000-square-foot shopping center in Valencia called the Promenade at Town Center and a 32,000-square-foot home furnishing center nearby.
The Promenade project, anchored by a Pavilions grocery store, is already 80 percent leased. Four of five buildings in the home furnishing center are leased as well.
"What this economy has done is throw out the B, C and D locations for people," he said. "You've got to have an 'A' location."
Caruso's company has $500 million in projects either in construction or in design, including the Grove at Farmers Market and centers in Glendale, Thousand Oaks and at Playa Vista.
He remains bullish about the real estate market despite the slowing economy and somewhat overbuilt retail sector.
"There's so much that's been in the pipeline that it (the economic downturn) isn't hitting the construction industry," Caruso said. "We're still seeing firmness in pricing for building materials. The cost of steel is exorbitant. What that tells you is there's still a lot of demand out there."
Michael Carney, a real estate professor at Cal Poly Pomona, agreed that the construction industry in greater Los Angeles appears to be enjoying steady employment at this point. How long that prosperity will last is anyone's guess.
One thing that will weigh heavily on the real estate market is consumer confidence and job security. The housing market, in particular, is tied to how safe people feel about their jobs.
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