The Street-Level Beat: Los Angeles Region

LOS ANGELES—As a landlord representation firm specializing in small- and medium-sized core, as well as special use property sales and leasing, we've encountered broad increases in activity in most product types and in most submarkets in the Los Angeles region. Acquisitions in Los Angeles are no longer exclusive to multifamily, and there are few distressed assets cropping up for sale.

We're putting together land assembly deals, prime property ground lease acquisitions and renewals, and observing tremendous investor activity in everything from existing medical office and hotel properties to speculative development or redevelopment of those property types along active corridors.

Office vacancy continues on a downward trend, absorption is up and most transactions are new leases. We're actually starting to see rate increases while incentives are reduced—even eliminated—in some areas such as Downtown L.A. and Century City. Creative space, especially in some of the areas adjacent to or along the fringes of stabilized, concentrated office markets, including Downtown Los Angeles (both in the core area and around the outskirts); Pasadena in the Arroyo Parkway and Fair Oaks Avenue Corridor; and parts of Glendale and Burbank adjacent to the office core areas, are hotly contested as they are already in high demand.

The medical office market is very active as well. Larger institutional owner-operators like Cedars-Sinai, USC, UCLA and regional organizations like Huntington Hospital in Pasadena continue to grow and expand, often acquiring private medical office operations in their service areas and adjacent to their main campuses. We see this trend continuing over the next several years.

Retail markets, while seeing increased leasing and acquisition activity, are just beginning to recover in many areas, especially in the smaller neighborhoods. While retail banking has been active, we're not seeing credit tenant expansion in too many areas yet, though this growth is just over the horizon. Ground floor retail in Downtown Los Angeles, especially below new construction, is showing increased interest, however, not many leases have been executed as of yet. Old Town Pasadena, a former retail hotspot, is experiencing more vacancy than previously seen and is filling more slowly than expected. With higher vacancies leading to lowered rents, we expect to see new players in ownership and tenants enter this market in the next few years.

Industrial property, especially along the high travel corridors in and out of our ports, continues to be our most stable property investment, with increasing rates, steady absorption, and low vacancy. Several infill and rehab projects are on the verge of breaking ground in pockets throughout the area, and small and medium space tenant demand is high. While industrial property doesn't have the sex appeal to lure most of our foreign investors—who still seem to be chasing after market trophy office properties with aggressive all-cash offers as safe havens—it is possibly the best bang for the buck for domestic, non-institutional investors.

There's no doubt that we're out of the stagnancy of the recession, and while products in various submarkets are performing at different degrees, we are optimistic about the future of Los Angeles' commercial real estate. As a native Angeleno running a 93-year-old firm headquartered in the heart of Los Angeles, I am personally encouraged by the efforts of some of our local politicians like Councilman Jose Huizar, and efforts of groups like the CCA (Central City Association) and Bringing Back Broadway to support and encourage redevelopment of unique areas like the Broadway Corridor. Downtown's rich historical theatre district and new properties like the Ace Hotel encourage pride in our city, history, and unique social fabric, which will prompt economic growth, attract business, and fortify our position as the West Coast's economic hub. The more our city celebrates our past and folds that identity into our present and future, the better chance we have of growing our own economy from within and controlling our economic destiny rather than relying upon outside factors to change or shape it.

Walter F. Conn is president of brokerage services at Charles Dunn Co. The views expressed in this column are the author's own.