L.A. Construction Nears End of Cycle

Construction activity has remained strong across asset classes in Los Angeles, but as more and more product comes to market, supply may be beginning to outstrip demand. That could mean construction is coming to the end of its cycle. Of course, supply-demand dynamics are unique to each asset class. Multifamily, for example, is starting to see rising vacancy rates in some areas, suggesting supply has caught up to demand. Industrial, on the other hand, continues to suffer from a severe supply shortage.

“Construction activity has increased significantly in L.A. in most sectors including industrial, healthcare, infrastructure, multifamily and commercial office,” Carlos Serra, managing director at JLL, tells GlobeSt.com. “With that said, a number of these markets are close to the end of their cycle where supply is now outstripping demand, specifically in multifamily.”

Job and industry growth, particularly in technology and media industries, has driven the surge in new construction. The most successful examples are Hollywood and Downtown Los Angeles, where the construction pipeline has included office, multifamily, hotels and retail. “Activity has increased in recent years with the emergence of local tech companies some of which are based and founded in L.A. and others in Silicon Valley,” says Serra. “The emergence of these new businesses in the last three to five years has created demand in multiple sectors, including multifamily, retail, and hospitality. Other drivers behind construction activity were the influx of Asian developers that were aggressively entering the L.A. market for the last few years however this trend is reversed and most of these original Chinese developers have exited the local market due to restrictions on government funding and financing leaving China and the potential over supply in certain sectors.”