LOS ANGELES-Gone are the days when developers of mixed use, retail, multifamily and some hospitality followed the phrase “if you build it, they will come.” Today’s tenants need more.
That was the overall message Tuesday from brokerage roundtable panelists who spoke with RealShare Los Angeles, put on by ALM’s Real Estate Media Group. According to panelist Chris Cooper, principal and managing director of Avison Young, the fight for talent has never been greater.
According to Cooper, the areas of West L.A., Silicon Beach and even a migration into Hollywood and West Hollywood areas are hot. But for Downtown L.A., “you can’t just put up the for rent sign.”
Cooper continued that “there really has to be something that attracts today’s tenant.” What that means for the office market, he said, is huge opportunity to attract residents downtown to commute by foot or by bike etc.
But office building can’t exist as they do today, Cooper said. “These big super-towers downtown have to be inviting to the pedestrian and they aren’t right now.”
When moderator Tony Natsis, partner of Allen Matkins, asked about tech and social media tenants driving all the hot markets, Cooper pointed out that companies like Google, for example, won’t necessarily look to the common CBD. “Never say never, but I don’t see Google going into a traditional high rise.”
According to Cooper, a Google type tenant would probably take 50,000 square feet to 100,000 square feet downtown, but not in the obvious area. “You will have to see an adaptive reuse and the big issue will be parking,” he said. “You have the Arts district, the Warehouse district, the Theater district… There are countless restaurants with celebrity chefs that are far east of Flower Street. And there are residents walking at night with their dogs …there are people that live and work downtown.”
One of the biggest challenges that Cooper pointed to is when these residents have children. “They are still having trouble with the level of schools.”
Panelist Rick Putnam, managing director of Colliers International, agreed, noting that there are garden markets that are outside of the traditional CBDs. They aren’t traditional, he said, but they are markets where they are highly demographic.
Some of the markets he pointed to included places like the airport area in Orange County, which “has good head room if you are a tenant,” and other Southern California markets like San Diego.
Another area, according to panelist Don Hudson, executive managing director of Coldwell Banker Commercial Alliance, is the tri-cities.
“Look at Glendale. It is not as well known, but there isn’t a lot for sale there,” Hudson explained. “There is tremendous pent-up demand. The tough thing is that once it is bought, it never sells.”
A little further south in Orange County, panelist Greg May, executive vice president and managing director of Newmark Gruybb Knight Frank, says many investors are starting to buy product.
“Orange County is an interesting story in that it was kind of the scene of the crime,” explained May, who said the market was “clipping along.” And although office vacancy is now down to near 13% from 21% in 2010, the good news is that there is room for growth, he said.
The fascinating part of the story, said May, is the rents. “Class A rents are still very below where they were in 2007,” he explained. “Rents will rise with no new construction (aside from Irvine Co.’s spec project). If you are a tenant… the time to lock in is now.”
According to Putnam, the industry is in for a great run the next few years. And according to Cooper, one of the things that saves California from its own mistakes right now is that it is so diverse in terms of geography and jobs. “Everyone can find their place in the sun. When one piece in the economy suffers, you have other parts coming up. At the end of the day, we are fairly well balanced and that helps us overall.”