Rents are expected to climb again in Los Angeles in 2020 across commercial real estate asset classes. According to the 2020 market forecast from Avison Young, Los Angeles will continue to have record-low unemployment this year, which will fuel industry growth and demand for real estate across asset classes.

"At 4%, Los Angeles' unemployment is at an all-time low, and many industries are bullish on their plans to expand their footprint," Christopher K. Cooper, principal and managing director of Southern California at Avison Young, tells GlobeSt.com. "General labor force growth from a very diverse L.A. economy has been driving the health of all CRE property sectors, and we believe this trend will not slow in the near term—barring any catastrophic macroeconomic events."

This is helping to drive rent growth in the Los Angeles market in a number of ways, according to Cooper. Venture capital-funded startups with growth potential, ongoing success of Fortune 500 companies; and law firm acquisitions that are spurring the restructuring of office space, are all factors in Los Angeles growth. "According to the LAEDC, 30% of the labor force in L.A. hold a bachelor's degree or higher, and there are 14 significant industry clusters in L.A. that drive the region's diversified economic base," says Cooper. "Additionally, Los Angeles possesses several top-ranked universities for STEM graduates, including Caltech, UCLA, and USC. All are major feeders to growing industries in the region."

In addition, the Los Angeles population and high-quality jobs are continuing to grow. "With highly educated and qualified workers throughout the metropolitan area, new product can't come to market fast enough," says Cooper. "Oftentimes, this leaves tenants with little choice but to seek pre-leasing opportunities with new developments. The phenomenon is especially prevalent with tenants requiring large blocks of contiguous space in the newly developed "live, work, play" environments. Moreover, while the trend is occurring across the county as a whole, the Westside submarkets have been particularly responsive to pre-leasing."

The bottom line: this economic growth will lead to rent growth throughout the market as more and more space is used us. "Ultimately, we anticipate that rent growth will continue to rise across asset classes while vacancy will decline," says Cooper. "Considering Los Angeles' labor force growth within the office-using sector over the past decade—REIS has recorded an increase of 1.3% per year, or approximately 16,000 new office jobs annually—we expect our anticipations to hold true."

Instant Insights /

L.A. Rent Growth Expected Across CRE Assets in 2020

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