Jim Andersen, Trammell Crow Company
We are seeing several trends emerge in the Los Angeles multifamily development sector as we move into the second half of 2014. These trends are influenced by several factors, including job growth, local economy and public infrastructure.
The unemployment rate in Los Angeles County has continued to tick downward with true job growth across all sectors, which, in return, has had a direct influence on multifamily project starts. Job growth has been exponential in certain markets, including West Los Angeles, Downtown Los Angeles and Tri-Cities (Glendale, Burbank and Pasadena), creating natural household formations to accommodate the swell of rental demand.
Job growth, along with the creation of a comprehensive public transportation system, will continue to drive multifamily development and construction in a way the City of Los Angeles has never seen before. The construction pipeline has swelled to 14,500 rental units, including 12,200 market-rate units. At the end of the first quarter, nearly 29,000 rentals were planned in the county, which is roughly 50 percent higher than the number of units on the drawing board one year ago. With the subway expansion, areas of town that were once deemed undesirable by developers and residents are now being sought after in preparation for the station openings. We will continue to see a surge of transit-oriented multifamily projects being constructed around the planned stations, as well as an increase in retail and office development to keep up with the rise in population.
Another trend we are currently experiencing in Los Angeles is the flight to more urban living. Residents throughout the city and surrounding markets have a growing preference to avoid commuting, creating a true renaissance for city living. There is more demand to live in locations within close proximity to work, retail and entertainment venues than ever before. We can expect to see more mixed-use multifamily projects, accompanied by office and retail to create walkable neighborhoods connected by new transit lines.
At the height of the recession, we saw many tenants, especially young singles, seeking roommates in order to live in more attractive markets. Those that coupled-up faced the ongoing problem of “roommate defaults” – being left to cover the cost after a roommate lost their job or moved out. Now those tenants are seeking affordable, single-unit apartment homes. Rather than sacrificing location for rent price, the new micro-unit apartments offer smaller, more efficient space. The average apartment size in the Greater Los Angeles area has decreased by 100 square feet to 115 square feet. In order to make up for the decrease in space, units are outfitted with high-end finishes and amenities, including stainless steel appliances and hardwood flooring.
The Downtown Los Angeles area has seen a 9 percent population growth over the past five years. What has typically been an area catering to the business crowd has now transformed into a hotspot for new restaurants and entertainment venues, as well as an ideal location to live due to its proximity to transportation and public infrastructure. Downtown has seen a 500 percent increase in the number of restaurants and bars in the past five years, while the resident population has grown by 6,880 since 2011 and 23,520 since 2006. Today, more than 50,000 people live in the Downtown area.
Multifamily development in Los Angeles doesn’t come without its challenges. Developers face several challenges today, including finding quality sites in an essentially built-out city. Repurposing or reusing existing real estate is necessary, as vacant land is not as common as in other metropolitan areas. There has been a surge of foreign capital entering the marketplace recently, making site acquisition and procurement difficult.
— By Jim Andersen, Senior Vice President of Trammell Crow Company. This article first appeared in the October 2014 edition of Western Real Estate Business magazine.