Developers Need to Look at Downtown Los Angeles

Developers Need to Look at Downtown Los Angeles

Downtown Los Angeles (DTLA) is seeing the biggest development boom since the 1920s! As Bisnow puts it, “the revival of downtown Los Angeles tells a story of a comeback.” For decades, downtown LA has seen, violence, crime, urban flight, and general dilapidation—and that doesn’t even include smog and traffic.

But since 2000, the City of LA began its downtown revitalization efforts. Over that time, $24 billion dollars has been invested in those efforts. The city has backed multi-million dollar developments that include mixed-use areas, Smart building and city technology, ride-sharing programs, increased walkability, and improved transportation infrastructure, making this a great market for real estate developers in luxury, multifamily, and retail space.

DTLA is the Top Performing Market for SoCal Developers

Much of the news in CRE lately has been the move away from primary markets into sub-markets. Generally speaking, those are the markets that are seeing the most growth and DTLA is considered a sub-market. It is seeing year-over-year growth of 4%. In fact, office, retail, restaurants, and residential have made DTLA “Southern California’s top-performing sub-market.”

A somewhat unreported aspect of all of this new development is that the bulk of it is coming from overseas, particularly China. Even Korea Air just opened the “tallest building” on the West Coast; a hotel with office space.

Chinese developers are putting $1 billion dollars into a mixed-use “community” full of hotel rooms, condos, retail, and more. CoStar reports that over the last 8 years, SoCal has produced more than 40 developments that were 50K square feet or bigger – turning old warehouses into offices and backing “large adaptive reuse projects.” There are more than three dozen new projects currently underway.

The LA Times notes that the last time there were this many large-scale developments underway in Los Angeles, it was the “roaring 20’s” – 155 projects of 50K square feet or more went up between 1920 and 1929. It was this boom that basically put California on the map as a trendsetter in downtown design.

DTLA is Ahead of Future Trends

One of the most attractive things about DTLA besides location, location, location, is the incredible investments the city has made over the last two decades in its public transportation, advanced technology, creative ride-sharing, office sharing, and Smart building design. Plus, as a hotbed of highly educated workers, being ahead of current and future trends have kept jobs and job seekers in and around LA.

Developers are also taking into account the need for preservation in DTLA. Long established neighborhoods and communities have pushed back on some of this development explosion.

Many feel that some developments will change the whole culture and vibe of beloved neighborhoods in the area. So developers are working to create community developments that bring everything together: services, retail, housing, entertainment, and hospitality, in one place.

The Development Deluge is Causing a Pullback

Some worry that the extraordinary amount of development happening in DTLA right now is inevitably going to hit a wall. With all booms, a bust eventually follows, but the trajectory for DTLA seems to only be going up. Vacancies are increasing in some new multifamily units (some argue because new housing caters more to the wealthy) so building owners and landlords are using lease rebates or two months free rent for signing a lease to attract new tenants.

Lenders are also watching the economy for signs of a slowdown and therefore are not necessarily pulling back but rather are being much more selective about what investments to back. For now, it appears that developers would be wise to take a look at DTLA.

By |2018-10-23T14:35:12+00:00October 6th, 2018|