Developers continue to transform L.A.’s urban neighborhoods
Construction cranes have become a permanent fixture in the Downtown L.A. skyline, and that building boom seems to have plenty of runway left. Construction activity reached a new record high in 2017 and developers are continuing to scout for fresh opportunities.
The “renaissance” transforming the central business district and surrounding urban neighborhoods spans a variety of residential and commercial projects from condos and apartments to retail, entertainment, office and hotels. However, residential developers are leading the charge thanks to a renewed appetite for urban living. Last year, 11 new apartment and condo properties opened and added more than 2,800 units, and another 10,000 units were in various stages of construction at year end. As we can see from the data we pulled from Reonomy, the multifamily market in LA seems to be steadily increasing. Sales in 2017 were more than double that in 2015.
The question some are asking is whether activity will continue or if new supply will start outpacing demand. Apartment vacancies are elevated compared to other areas of the country as the market works to catch up to the new supply. At year-end, apartment occupancies were averaging 89.8% with average rents of $2.89 per square foot, while condos were selling for an average of $697 per square foot, according to the Downtown LA BID. New projects underway and proposed run the gamut from luxury condos to affordable housing.
On the office side, vacancies also ticked higher to 17.7% at year-end with the opening of new projects, such the Wilshire Grand Center. However, rents also have jumped 15% over the past two years, according to the BID. We decided to take a look at office building sales over the past 3 years for L.A. in Reonomy. There has been a slight decrease in sales over the past few years, as seen below.
So far, developers seem to be banking on the fact that there are still plenty of opportunities ahead. Construction is widespread across several downtown neighborhoods with projects currently underway in the Financial District, Fashion District, Arts District, Historic Core, South Park, Chinatown and Little Tokyo.
One of the keys to the revitalization occurring downtown has been a growing residential base. The population of people living downtown has more than tripled since 1999 to about 65,000, and some projections indicate it will double again over the next decade. The catalyst behind that growth started nearly two decades ago with an Adaptive Reuse Ordinance that was introduced in 1999 that made it easier for developers to convert older and historic commercial buildings into lofts and apartments.
For example, a recent article in Curbed L.A. highlighted the South Park neighborhood with a list of more than two dozen residential and commercial projects that are underway or proposed, including 1335 Grand, a 28-story residential project proposed last year that will include about 280 new residential units. The project is situated on S. Grand Avenue about a block from the California Hospital Medical Center and will replace a current single story industrial structure.
In April, the Historic Core also celebrated the opening of The Topaz, a new 159-unit apartment building with ground floor retail space at the corner of Fourth and Main Streets. Most of the new residential loft, apartment and condo projects that have opened in the past decade have been conversion projects. However, the Topaz is one of few ground-up market rate housing projects that have been built in the Historic Core.
The growing population also has helped put the CBD back on the map as a retail and dining destination. As of year-end, retail vacancies had dropped to 4.5% with roughly 1.3 million sf of new space under construction. New store openings in 2017 ranged from Nordstrom Rack at FigAt7th to OrangeTheory at 5th Street and Figueroa.
Looking ahead at 2018 and beyond, the pipeline for commercial and residential projects remains robust. Notably, the city has approved the $1.2 billion mixed-use development proposal at the Angels Landing site for an 88-story tower that will include a hotel, condos and even a charter elementary school.
Developers are keeping a close eye on the new supply and hefty list of projects still on the drawing board. However, many are continuing to find pockets of opportunities, especially in up-and-coming hot spots where new projects are helping to create positive momentum and transform neighborhoods into urban live-work-play destinations.
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