LOS ANGELES—Development and redevelopment were huge trends and topics last year in Los Angeles. JLL, which puts out weekly trend sheets, complied its most popular topics in 2016. The list includes: Los Angeles' tech industry hits the mark on multiple growth indicators; The rise of creative conversions in Los Angeles; El Segundo establishes its position with creative tenants; Need more housing? Build build build; Los Angeles home ownership declining; Comparing top retail spending neighborhoods in L.A.; Completion of the Expo Line will impact over 6 million square feet of existing retail; Ranking of proposed and under construction retail projects in the Los Angeles regions; LA's retail redevelopment boom; and Pop-ups: The first sign of online retailers moving into brick-and-mortar. To find out more about the trends and topics that dominated the year and what to expect in 2017, including the trends that will prevail, we sat down with JLL senior analyst Henry Gjestrum for an exclusive interview.
GlobeSt.com: What was the biggest theme in the year's top topics from 2016?
Henry Gjestrum: The conversions of obsolete industrial assets and repositioning of historical buildings to creative office was a big theme throughout 2016. In some cases, creative repositioned buildings outperformed traditional Class-A office commanding an 18 percent rental premium. In one of the year's largest lease signing, Warner Music Group committed to the Ford Motor Factory, a former 1920's area automotive assembly undergoing conversion to creative office in Downtown's Arts Districts. The former Howard Hughes Spruce Goose hangar in Playa Vista was sold to a Japanese investment group. The oversized aircraft hangar will have a second life as a creative office building housing Google as the tenant.
GlobeSt.com: Overall, how did these topics help shape the year?
Gjestrum: Similar to Playa Vista where tech giants now cluster, WMG's consolidation in the Arts District into an unconventional asset will potentially attract other media and entertainment firms to the market. There is currently about 1.5 million square feet of product under conversion-to-office in the Arts District. The unprecedented growth of multifamily in Los Angeles was another leading topic shaping 2016. LA multifamily vacancy reached a historical low of 3.3 percent, half the national average of 6.7 percent, highlighting extremely strong demand for rental property and an indication of the market's ability to absorb the pipeline of new development in coming years. In one of the largest investment sales transaction in Los Angeles in 2016, a real estate investment trust (REIT) along with QIA (Qatar Investment Authority), an 80 percent partner, tied up an office portfolio at an estimated sale price of $1.35 billion making the REIT a dominant landlord in Westwood with an unprecedented 78 percent market share.
GlobeSt.com: Which of these do you expect to remain relevant in 2017, and why?
Gjestrum: The repositioning of industrial and conversion of historical assets into creative will remain relevant in 2017. The amount adaptive-re-use projects in the pipeline is beginning to surpass traditional ground up-office development. It will be interesting to see if tenants continue to embrace the product type and are willing to pay comparable or higher rents than for traditional Class-A office product.
GlobeSt.com: Five of the ten topics are retail focused. Was that surprising, and what does it say about L.A. retail?
Gjestrum: It wasn't surprising at all. Retail remains an important sector shaping the Los Angeles commercial real estate market, particularly in Downtown LA where residential continues to expand at a record pace. These emerging residential pockets provide great opportunity for retailers to serve a young and affluent segment of the community. Although retailers faces many challenges in the digital era, we are seeing retail reinvent itself in Los Angeles. Online retailers are starting to seek a more physical presence, and traditional mall owners are transforming their assets to deliver a more dynamic shopping experience to consumers.
Although e-commerce continues to be a significant disruptor to traditional brick and motor retailing, we are seeing online retailer in Los Angeles seeking a physical location in the form of pop-up stores, which last from several days to several months, and are often the first sign of online-retailers looking to lease longer term space. This trend is visible in Los Angeles as it has the second highest amount of online-retailers with physical locations of the 51 prominent retailers according to a recent JLL retail study.
Existing malls in Los Angeles are finding new life as owners are capitalizing on the evolving behaviors of shoppers by focusing on the visitors' experience and adding high-end restaurants, quality open spaces, and in some cases residential units to make these shopping centers 24-hour destinations. Multiple large shopping centers, totaling over 3.6 million square feet of retail, are currently getting multi-million dollar makeovers to give updated looks to outdated malls.
GlobeSt.com: Now that the year has closed, what is your reflection on 2016 as a whole?
Gjestrum: Overall, 2016 was a good year for real estate in Los Angeles. Unemployment reached cyclical lows. The alignment between entertainment and technology continued to power tenant demand. Office sublease activity remained low indicating stable growth. Retail owners made capital investments to upgrade and reposition aging shopping malls. Los Angeles multifamily vacancy reached historical lows fueling record amount of development.
LOS ANGELES—Development and redevelopment were huge trends and topics last year in Los Angeles. JLL, which puts out weekly trend sheets, complied its most popular topics in 2016. The list includes: Los Angeles' tech industry hits the mark on multiple growth indicators; The rise of creative conversions in Los Angeles; El Segundo establishes its position with creative tenants; Need more housing? Build build build; Los Angeles home ownership declining; Comparing top retail spending neighborhoods in L.A.; Completion of the Expo Line will impact over 6 million square feet of existing retail; Ranking of proposed and under construction retail projects in the Los Angeles regions; LA's retail redevelopment boom; and Pop-ups: The first sign of online retailers moving into brick-and-mortar. To find out more about the trends and topics that dominated the year and what to expect in 2017, including the trends that will prevail, we sat down with JLL senior analyst Henry Gjestrum for an exclusive interview.
GlobeSt.com: What was the biggest theme in the year's top topics from 2016?
Henry Gjestrum: The conversions of obsolete industrial assets and repositioning of historical buildings to creative office was a big theme throughout 2016. In some cases, creative repositioned buildings outperformed traditional Class-A office commanding an 18 percent rental premium. In one of the year's largest lease signing,
GlobeSt.com: Overall, how did these topics help shape the year?
Gjestrum: Similar to Playa Vista where tech giants now cluster, WMG's consolidation in the Arts District into an unconventional asset will potentially attract other media and entertainment firms to the market. There is currently about 1.5 million square feet of product under conversion-to-office in the Arts District. The unprecedented growth of multifamily in Los Angeles was another leading topic shaping 2016. LA multifamily vacancy reached a historical low of 3.3 percent, half the national average of 6.7 percent, highlighting extremely strong demand for rental property and an indication of the market's ability to absorb the pipeline of new development in coming years. In one of the largest investment sales transaction in Los Angeles in 2016, a real estate investment trust (REIT) along with QIA (Qatar Investment Authority), an 80 percent partner, tied up an office portfolio at an estimated sale price of $1.35 billion making the REIT a dominant landlord in Westwood with an unprecedented 78 percent market share.
GlobeSt.com: Which of these do you expect to remain relevant in 2017, and why?
Gjestrum: The repositioning of industrial and conversion of historical assets into creative will remain relevant in 2017. The amount adaptive-re-use projects in the pipeline is beginning to surpass traditional ground up-office development. It will be interesting to see if tenants continue to embrace the product type and are willing to pay comparable or higher rents than for traditional Class-A office product.
GlobeSt.com: Five of the ten topics are retail focused. Was that surprising, and what does it say about L.A. retail?
Gjestrum: It wasn't surprising at all. Retail remains an important sector shaping the Los Angeles commercial real estate market, particularly in Downtown LA where residential continues to expand at a record pace. These emerging residential pockets provide great opportunity for retailers to serve a young and affluent segment of the community. Although retailers faces many challenges in the digital era, we are seeing retail reinvent itself in Los Angeles. Online retailers are starting to seek a more physical presence, and traditional mall owners are transforming their assets to deliver a more dynamic shopping experience to consumers.
Although e-commerce continues to be a significant disruptor to traditional brick and motor retailing, we are seeing online retailer in Los Angeles seeking a physical location in the form of pop-up stores, which last from several days to several months, and are often the first sign of online-retailers looking to lease longer term space. This trend is visible in Los Angeles as it has the second highest amount of online-retailers with physical locations of the 51 prominent retailers according to a recent JLL retail study.
Existing malls in Los Angeles are finding new life as owners are capitalizing on the evolving behaviors of shoppers by focusing on the visitors' experience and adding high-end restaurants, quality open spaces, and in some cases residential units to make these shopping centers 24-hour destinations. Multiple large shopping centers, totaling over 3.6 million square feet of retail, are currently getting multi-million dollar makeovers to give updated looks to outdated malls.
GlobeSt.com: Now that the year has closed, what is your reflection on 2016 as a whole?
Gjestrum: Overall, 2016 was a good year for real estate in Los Angeles. Unemployment reached cyclical lows. The alignment between entertainment and technology continued to power tenant demand. Office sublease activity remained low indicating stable growth. Retail owners made capital investments to upgrade and reposition aging shopping malls. Los Angeles multifamily vacancy reached historical lows fueling record amount of development.
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