Forecast Sees Faster Downtown Recovery

LOS ANGELES-Downtown L.A. could start its recovery from the recession sooner than other parts of the county, the state and the nation, thanks to its transportation links, the new L.A. Convention Center hotel and its stable commercial real estate markets. That is the gist of a forecast by Jack Kyser, founding economist for the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp., which recently presented a regional forecast as well.

Kyser, who presented his Downtown outlook recently at the Central City Association’s Ninth Annual Downtown Los Angeles Economic Forecast, tells GlobeSt.com that Downtown is uniquely positioned to come out of the downturn for a number of reasons. For one, upcoming events like the opening of the Gold Line rail extension from Union Station into East L.A. and the opening early next year of the Los Angeles Convention Center hotel will bring more people to and from the city.

Kyser estimates that the number of room nights Downtown will climb to 400,000 in 2010 from 245,000 in 2009 with the opening of the JW Marriott and the Ritz Carlton, which will make Downtown more competitive for major business shows and conferences. The hotels will attract business visitors as well as their families, Kyser notes. With the Metrorail connections available from Downtown, “There are a lot of things for those family members to see and do when they come to Los Angeles,” Kyser explains, such as catching a train to Universal Studios or taking the Blue Line to Long Beach to the Aquarium of the Pacific or cruises to Catalina. In addition, the Downtown freeway system provides access to Los Angeles International Airport, Bob Hope Airport in Burbank and other destinations.

Kyser cites the 1.1% vacancy rate in the Central L.A. industrial market and the county’s overall 2.2% industrial vacancy as evidence of its strength. He points out that the office market, although it has weakened with office markets around the country, has not been hit as hard as many others. Downtown didn’t have the exposure to the subprime lenders that caused such havoc in the Orange County office market, nor did it depend on the financial companies like those on the Westside of L.A., he explains. With office tenants now keeping an even keener eye on rents, the class A office rates offered in Downtown are attractive when compared to other areas of L.A. county including Hollywood, the West Side and Santa Monica, Kyser points out.

Although the recession will continue throughout 2009, Downtown will fare well in that its residential and worker demographics supporting Downtown businesses. The area currently has 39,000 residents with an average household income of $100,000 or more per year. Approximately 440,000 people also work in Downtown.

Commenting on Kyser’s forecast, Carol Schatz, president and CEO of the Central City Association, says that the factors he outlines show that Downtown L.A. is “creating a strong and diverse economy.” The Downtown renaissance is creating jobs and business opportunities as well as new housing, entertainment venues and options for shopping and dining, she adds.

Kyser expects to see a reversal of the downsizing that some law firms have undergone because of the slowing in mergers and acquisitions. The new business that will be generated by workouts, bankruptcies and the like should mean at least stability if not growth in the legal sector, which has long been a key office tenant base in Downtown.

Although his outlook for Downtown’s recovery overall is positive, Kyser says that the road to recovery will include “some potholes along the way.” He notes that many observers are concerned about the flood of residential product that has come on the market. A host of condominium projects have come on the market and found that there were not enough buyers, so some have been converted to apartments, he explains, and some projects–both condos and apartments–are still under construction.

“The concern is whether there will be enough demand over the next year or two,” Kyser says of the Downtown housing market. A large part of the concern has to do with condos that came onto the market that are too expensive for most of the likely buyers Downtown. As Kyser explains, the main drivers of the Downtown housing market are “younger people who like a gritty environment and empty nesters who want the convenience,” and both of those groups are usually looking for more moderately priced units.