Smart Money Heads to DTLB

LOS ANGELES—Long Beach is the latest Los Angeles submarket to undergo a renaissance. With pressure from booming South Bay markets and the Orange County market, "smart money" is flooding into Downtown Long Beach. GlobeSt.com has reported several major office renovation projects and residential development projects in the market, and as a result, we sat down with Long Beach market experts Greg Gill, president of Lee & Associates Long Beach office, and Jeff Coburn, a principal in Lee & Associates Long Beach office, to talk about the evolution of the Long Beach market.

"Pressure is coming down the coast from areas that before were not as desirable," Gill tells GlobeSt.com. "You have Inglewood now picking up people out of West L.A. and looking to buy and occupy, and you've got Westchester and all of the sleepy hollow area around LAX. These markets were C-grade industrial and now are being acquired by savvy office investors and that has pushed people over to the Hawthorne area. That has had a very positive affect on Long Beach." Gill adds that additional pressure from Orange County is creating a confluence of demand in Long Beach. "We are seeing pressure pushing down from the South Bay and up from the Orange County market," he says.

As a result of this pressure from the north and south, investors, both residential and office, are finding value-add opportunities in the submarket, where rents are still at a significant discount to the surrounding markets. For example, El Segundo—which many still consider a burgeoning market—is getting rents in the high $2 per square foot rang, while Long Beach is capturing $2 per square foot rents. Coburn notes that price increased significantly in only the last six months. "We saw the class-A properties really come up first, but over the last year, the class-B buildings have really climbed up as well," he says. "Everyone is chasing the creative office buzz right now. In the last six months especially, we have seen a big jump in the asking price on all of these class-B buildings."

The overspill of demand from the South Bay and Orange County isn't the only driving factor in the Long Beach market. The ports are also driving investor interest, because there is and always will be a natural job center and a need for amenities. "You have the largest ports in the US and the fifth largest in the world, and you have 300 million square feet of industrial product in the South Bay area," says Gill. "That is bigger than Seattle/Tacoma combined. This is one of the most highly coveted industrial markets in the world. All of the big players are here. That bodes well for all that is going on in Long Beach."

Currently, the "smart money" is heading to the Downtown market. "There is no downtown for the vibrant industrial market," explains Gill. "If you are going to have lunch with the president of a company, you are going to go to Downtown Long Beach, because that is where the amenities are."

This isn't the first time that Long Beach has seen an influx of investor interest. Before the downturn, nearly a decade ago, the market saw a craze of new developments. "Now, we are seeing a run up again. The last go around, we saw more new construction, and now we are seeing more new development," says Coburn.

Many of the older B- and C-class office is now being converted into residential product as well, often with a retail component. Gill and Coburn expect the momentum in the market to continue throughout 2016 and beyond.