A growing desire by many for an urban lifestyle in the heart of a major city is dramatically transforming the soul and skyline of downtown Los Angeles.

Real estate construction is showing signs of staying power, industry watchers said, with work on major mixed-use projects including Oceanwide Plaza and Metropolis progressing and more on the way.

Residential development is leading the way among new projects, though a continuing trend toward creative office space is increasingly finding a home in the midst of a vibrant downtown renaissance.

The residential trend seems to be one of the strongest boosts of development in downtown, and it’s certainly larger than in the last cycle of the previous decade, said Ryan Aubry, director of development for Greenland USA, which is developing Metropolis near Staples Center. (see related Q&A, page 14)

“The first new high-rises were residential, and I think that partly in the last cycle a few towers that attracted new residents came downtown for the entertainment offerings,” Aubry said. “Those continue to expand with nightlife and cultural activities, and all of those things continue to increase the attractiveness of downtown.”

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Then, now

Downtown had 12,000 housing units as recently as the 1990s, and most of it was affordable housing, according to a recent Downtown Center Business Improvement District market report. Downtown now has about 39,000 units with most priced at market rate.

Many of the new residents are millennials in their 20s and 30s, though empty-nesters also are moving in, while foreign investors and successful entrepreneurs are snatching up condos, said Justin Weiss, vice president of Beverly Hills brokerage Kennedy Wilson, which handled the retail leasing for Oceanwide (see related Q&A, page 14).

“We have 65,000 people living in downtown, and with a new community plan in the works, the goal is 125,000 to 150,000 living down here,” Weiss said. “I can’t tell you when exactly, but hopefully (the population) will double in 15 years. That’s realistic.”

One person who’s been at the center of the transformation from 1999 onward is Carol Schatz, chief executive of the downtown BID and former head of the Central City Association, which helped advocate for the policies that would allow commercial property owners to convert old office buildings to residential properties (see related Q&A, page 16).

“We were looking at other downtowns around the country, and the element that was most important to bringing a downtown back was housing,” Schatz said.

She said the arrival of Staples Center in 1999 also spurred a renewed interest in people wanting to live, work and be entertained in downtown Los Angeles.

“We saw that people were attracted to the concept of living in a place where you could walk to work,” she said. “You could walk to entertainment. At that point, Staples was being built and that was part of this.”

Schatz said she attended a Bruce Springsteen concert at Staples – the very first concert at the venue – and it was an epiphany moment.

“I ended up spending the night at the Hotel Figueroa, and seeing that many people on the street was a miraculous event,” she said. “It was those things, principally the adaptive reuse (of older buildings for residential use), and the opening of Staples that really caused investors and Angelenos to look at downtown. Now there was a reason for us to come here if we don’t work here.”

Schatz and the CCA, in conjunction with the downtown BID, worked to market the area to investors, and assessed property owners for funds for cleanup and security.

Residential, office boom

Those efforts are bearing fruit today.

Currently under development: 10,756 residential units, about 2 million square feet of retail space, around 3 million square feet of office space and 1,156 more hotel rooms, according to the recent BID report.

The current projects take a place in the pipeline after this summer’s arrival of the Wilshire Grand Center, the tallest building in the West, which alone added 350,000 square feet of office space to the mix.

The downtown apartment occupancy rate in the second quarter, according to the report, was 86.3 percent.

“Residential is such a big element,” said Tony Morales, international director and lead broker at Jones Lang LaSalle (see related Q&A, page 16). “You can build in downtown Los Angeles and offer residential housing … and attract the millennials and the future workers and further consumers of our economy.”

Companies are increasingly seeing downtown as the place to be as well as a location to attract and retain talented employees, said Michael Zeitsman, international director of JLL’s capital markets.

The office vacancy rate, according to JLL’s second-quarter market report for downtown, was 16.4 percent, with the average rent per square foot at $44.60.

While higher than on the Westside, where office space is being gobbled up by creative and tech firms, the downtown vacancy rate remains static because of consolidation within the industries, JLL’s Morales said. Traditional office tenants in downtown have included law and financial firms.

“While the industries have stayed the same, they’ve shrunk and have gotten smarter about how users are taking up space,” he said. “That’s kept the vacancy rate about the same.”

Companies, he said, are ditching cubicles and opting for the open spaces filled with state-of-the-art technology that were pioneered by Silicon Valley as a means to attract and retain young talent.

“The culture is demanding it for the viability and the growth of corporate America,” Morales said. “Law, finance and insurance companies are all embracing this on one level or another.”

Creative industry firms are now deciding to settle in. One of the biggest recent deals was Warner Music’s 13-year lease for 257,028 square feet at the Ford Factory in the Arts District.

Downtown doesn’t need to compete for office users with the beach communities, Century City or Hollywood, said Andrew McDonald, executive managing director for Chicago-based brokerage Cushman & Wakefield who oversees the Los Angeles and Orange county markets.

“(Downtown) provides tenants and homeowners or renters an experience that is unique and a true urban environment,” McDonald said. “You’re getting a pure Los Angeles, densely similar to a larger city, but it’s unique to Los Angeles, and I think that is why downtown will continue to flourish. It provides something different than other places.”