In recent months, we’ve heard a lot of talk about tech startups, incubators and venture capital firms setting up shop in Santa Monica and surrounding beach communities. With this influx of techies, there’s also been a noticeable upswing in the housing markets, resulting in higher prices and an even more competitive rental market.
A survey conducted by Morgan Stanley released recently shows that L.A. investors rank technology as the most promising of all local economic sectors. Seventy-three percent of investors cited the industry as a good investment in the coming year. Furthermore, 79 percent said there is more growth potential in the next three years.
Once a fledgling sector, the tech industry is starting to really flourish.
At the same time, something very compelling is occurring in the real estate market surrounding the epicenter of this growth.
The same Morgan Stanley poll says that 40 percent of L.A. investors see the beach cities and South Bay as the most promising real estate markets in the L.A. area. These were, far and away, the most impressive result of any local market, West Los Angeles was next at a mere 12 percent.
Coincidence or not, intensified investor interest in these real estate markets is happening concurrently with a marked increase in local tech sector momentum.
According to recent housing reports, current median housing prices in the Beach Cities and the South Bay have risen 19.2 percent higher than those reported last year. Average rent in the area also has increased by 5.3 percent, and is roughly 30 percent higher than the average rent in Los Angeles County. In addition, new apartment and housing developments are under way in Santa Monica and Marina del Rey to accommodate increased demand.
As more and more companies open their doors along the coast, tech executives, entrepreneurs and everyone in between are putting down roots close to where they work. This mostly serves a practical purpose – who wants to sit in crosstown traffic on the 10 freeway? – but also helps to create a sense of community. You’re closer to where you work, to your colleagues and the area you serve.
The increased housing prices in the Beach Cities and South Bay might indicate that the L.A. tech industry is emerging from its early incubation stages and developing into a type of economy that supports markets in the region. As the tech arena strengthens, people moving to the area could bolster other industries, making it more of a foundational sector. Take, for example, Burbank and the San Fernando Valley. As more movie and television studios moved in, the region experienced a boost in all sectors as billions of dollars flowed in.
Buying or renting in the area is one of the first steps toward contributing to other markets. Once settled, people will then have to find places to eat, shop and relax. It was recently reported that Santa Monica and beach cities cafés, boutiques and restaurants have filled more tables and seen more foot traffic from the techie crowd. Now more than ever, with an increased emphasis on creating a tighter-knit community, people who live near their work are seeking out their local grocery stores, auto repair shops, dry cleaners and favorite coffee spots. It seems the new wave of tech employees is doing just that. More techies might mean more money for local businesses and growth in other markets.
When we take a look at the latest reports, we also see that Silicon Beach is an increasingly bullish market. According to a report issued by Built in L.A., startups in Los Angeles raised more than $1 billion in 2013. Fast Company magazine recently reported that 35.9 percent of L.A. startups are located in Santa Monica, the heart of Silicon Beach. All of this activity is also attracting stronger interest from venture capitalists.
All things considered, investors interested in the tech scene, and the impact on the local economy, have various options to look into.
Eric Johnson is a financial adviser with the private wealth management division of Morgan Stanley in Los Angeles.