Despite High Office Vacancy, Jobs Drive DTLA

LOS ANGELES—Many of the multifamily developers putting shovel to dirt in Downtown Los Angeles have cited ample jobs as one of the main drivers of the burgeoning market. However, Downtown Los Angeles, according to the latest report from the DCBID, has a high 18.4% office vacancy rate with large blocks of available space. While this number is an improvement from the historical 20% vacancy rate in the office sector, it begs the question, how is this office market driving development? The answer: even with a high office vacancy, the jobs-to-homes ratio is still higher than most other major cities.

"Downtown is increasingly desirable as a place to live, regardless of whether you work here," Carol Schatz, president of the DCBID, tells GlobeSt.com. "That said, with a weekday population of almost 500,000 and a residential population of around 60,000 we still have a jobs-to-residents ratio of 8 or 9 to 1, which is significantly higher than other major cities, even boomtowns like San Francisco and Seattle, so there is a lot of room for growth as an increasing proportion of those downtown workers decide to make downtown home as well."

According to the 3Q15 report from the DCBID, there are now 25,000 multifamily units in the downtown pipeline, including 2,001 condos and 8,600 apartments currently under construction. While the office market has some one of the highest vacancy rates in the city, the multifamily market has an astounding 97% occupancy, which is right on trend with the greater Los Angeles market.

Even with 25,000 units in the pipeline, Schatz says that there is no concern about over supply. "It is not likely. Demand for housing is extremely high across Southern California, especially in Los Angeles, and Downtown's desirability will keep it ahead of even those growing curves," she says. "In the short term, it could take a little longer for properties to lease up, but the amount of pent-up demand will ensure that they do get filled, and we have seen no evidence of price cutting, in fact, quite the contrary, rents are stable or rising."

Actually, the development could potentially help the market by increasing attention and interest and helping to build out the community. "As new properties and other amenities come online, they increase the overall appeal of Downtown as a residential community, which in turn, continues to drive demand," explains Schatz.

Schatz adds that the market is also attractive to the millennial generation, which is seeking a more urban environment. The cultural shift to live/work/play lifestyles is really helping to fuel the market. "This is an increasingly easy sell, particularly to younger generations who are already more attracted to the active urban lifestyle," says Schatz. "As DTLA lifestyle gets more and more desirable with all of its arts and culture, restaurants and nightlife, and the alternative of commuting gets less and less desirable, that trend will continue to accelerate. That's the calculation a lot of these residential developers are making, that we still have a lot of room to grow."