After posting record-high levels of development in 2017, Downtown L.A. is proving it still has some gas in the tank for additional expansion.

Downtown is experiencing a prolonged building boom with more than $28 billion invested in new construction over the past two decades with plenty of momentum still ahead. The area remains one of the hot spots for development nationally with a variety of public and private projects underway that span residential, office, retail and hospitality along with new infrastructure, parks, and green space.

One of the big drivers for activity throughout downtown is its growing population base across more than a dozen distinct districts or neighborhoods. Since 1999, there have been an estimated 30,000 new apartment and condo units built with a population that now exceeds 71,000, according to the Downtown Center Business Improvement District (Downtown BID). At the end of the second quarter, there were an estimated 7,000 market rent apartment units and 2,100 condo units under construction with a total of 4,000 of those residential units expected to open this year.

Despite the new projects that have already been completed, apartment occupancies have been holding up well thanks to strong renter demand. Occupancies improved slightly to 94% in the second quarter, according to the Downtown LA Bid. Investors are attracted to the growth story and revitalization that is sweeping through several downtown neighborhoods, including core CBD areas such as South Park, the Financial District and Civic Center, as well as further out in the Historic Core, Central City East and the Arts District.

Downtown Los Angeles Trends

According to Reonomy, Los Angeles remains one of the most active markets in the country for apartment sales with $5.4 billion in properties that have traded year-to-day through mid-October. However, activity has actually slowed compared to the prior two years when sales topped a high of $8.1 billion in 2016 and $7.2 billion in 2017.

 

The growing residential population, along with a solid base of daytime workers and visitors is fueling new retail growth. Downtown L.A. is home to the Staples Center, LA Live entertainment complex and the Los Angeles Convention Center, which help to attract some 19 million visitors downtown each year. There is 1.3 million sf of new space under construction and 2.5 million sf of additional projects that are proposed, according to the Downtown LA Bid. The Bloc is one project that has announced new additions that include Nordstrom Local and a new two-story flagship planned for Uniqlo.

Another sign of that robust retail market is a very active investment sales market. According to Reonomy, $3.4 billion in retail properties have traded this year, which is more than double the $1.6 billion in sales that occurred last year. Office sales have slowed over the past two years with $2 billion in properties trading in 2017 and another $905 million transactions year-to-date, according to Reonomy.

 

Despite subdued offices sales volume, there is a lot of ongoing activity, including 2.8 million sf of new space under construction and another 3.6 million sf of projects proposed. Downtown is continuing to attract new tenants that are expanding or relocating to the urban core. For example, global engineering firm Arup announced earlier this year that it would move from Playa Vista into a 66,000 sf space at the newly opened Wilshire Grand Center, a 73-story skyscraper at Wilshire Boulevard and Figueroa that also is home to the 889-room InterContinental Hotel. However, investors are keeping a close eye on vacancies, which have climbed above 17% due to the new supply being added to the market.

 

Major Projects Move Forward

There are numerous major projects underway or proposed that are changing the skyline and/or contributing to revitalization occurring in key neighborhoods. Some examples of notable projects include:

Oceanwide Plaza:

This $1 billion mixed-use project has a prime location across from Staples Center and L.A. LIVE in South Park. It will include 504 condos, 184 hotel rooms, and almost 200,000 sf of retail when it is completed in 2019.

ROW DTLA:

Atlas Capital is redeveloping about 1.5 million sf of industrial space into a creative destination for retail and office tenants at 7th & Alameda in the Arts District. The project will feature 1.2 million sf of creative office space and 200,000 sf of retail and restaurant space. Initial tenants have already opened with completion set for 2019.

825 South Hill:

Vancouver-based developer Omni is building this 50-story residential project in the Financial District. The project contains 516 new units with completion expected by year-end.

These projects certainly point to L.A.’s position as a major gateway market known for attracting major institutional investors and foreign capital. But in addition to trophy properties, developers and investors are finding opportunities for in-fill projects, adaptive reuse and creative office in some of the up-and-coming neighborhoods outside of the Financial District and main CBD. For example, there are several smaller mixed-use office and retail projects underway or proposed in the Historic Core and Arts District.

In addition to the commercial and multifamily development, one significant infrastructure project that has taken another step forward is a plan to add a Downtown L.A. Streetcar line. In August, the L.A. City Council approved a funding plan for the project, which is currently estimated at $281 million. The new streetcar line would connect downtown’s neighborhoods, key destinations and other transit hubs with a 4-mile loop. If the city can stick to its initial timeline, the streetcar line could be up-and-running by the end of 2020 and would be another example of a growing list of amenities that are attracting residents, visitors and workers to the city’s core.

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