L.A. Hits Record New Construction Pipeline

Despite the ongoing pandemic, Los Angeles is in the midst of a construction boom, according to a report from CBRE. The research shows that Los Angeles has a current new construction pipeline of 39.5 million square feet, a number that the market has not seen since the 1980s. The pipeline includes office, industrial and apartment projects that are in active development. There are an additional 127 million square feet of proposed projects.

“The robust activity reflects a long-term bet on the economic strength of the LA region, Eric Willett, regional director of research and thought leadership at CBRE, tells GlobeSt.com. “On the office side, developers are looking to the dynamic growth of regional content creators and building cutting-edge creative office space. On the multifamily side, the dozens of new apartment buildings reflect the intense demand for housing that has been persistent throughout Southern California.”

Among the projects currently under construction, multifamily is the clear leader. There are currently 135 million square feet of either active or proposed apartment projects under construction. “The intense development in multifamily throughout the region reflects the longstanding shortage of multifamily in the Greater LA area. There has long been a need to build more housing and developers are responding to that need—and the resulting compelling economics for that asset class,” says Willett.

Many of these projects were in the construction log well before the pandemic hit. In recent months, lending activity for new construction has slowed significantly, reflecting the period of uncertainty. However, Willett isn’t concerned about overbuilding, especially in the long term. “Without a doubt the pandemic and economic downturn are negatively affecting demand and are likely to do so over the next year,” he says. “However, in many cases the projects currently under construction and those in the pipeline are long-term bets on the region’s growth and economy.”

Ongoing activity is another good sign that overbuilding isn’t a concern. Few developers have shelved early-phase projects or stalled ongoing construction. “Thus far in the pandemic, we have few signs of builders pressing pause on projects currently under construction,” says Willett. “We do expect the pipeline to slow in the coming quarters as developers wait for more economic certainty before commencing construction on currently planned projects.”

Next year, the pace of new construction is likely to stall as a result of the pandemic, according to Willett. However, ongoing deliveries will mask the construction stall next year.