Report: Downtown L.A. multifamily market in danger of oversupply
For a while, it seemed like a new luxury high-rise, complete with the obligatory infinity pool and sky-high rents, was announced in Downtown Los Angeles every week. There were 1,500 high-end units delivered in the past year, and more than 6,000 are currently under construction, according to CoStar Market Analytics.
But now, Downtown’s multifamily market risks becoming oversupplied, especially on the luxury end, Steve Basham, senior market analyst at CoStar Group, said in a recent report on the submarket.
The unprecedented rate of new construction has caused vacancies to rise and rental growth to slow, according to the report. Vacancy was a low 4.1 percent in 2013 but rose to 6.7 percent in 2014 and 6.9 percent in 2015. CoStar Market Analytics projects that it will rise above 7 percent this year.
This could put a damper on the enthusiasm that swirls around the revitalization of Downtown L.A. Basham noted that only luxury units are being built, but Downtown L.A. has a long way to go before it can be considered a luxury neighborhood. “As the affluent millennials who are helping drive the Downtown boom begin to age and start families, a vibrant nightlife will become less important than good schools, safe streets and green spaces,” he said.
Boston Properties eyes L.A. as core market
Owen Thomas
Boston Properties CEO Owen Thomas said the company’s recent foray into Los Angeles — with the $500 million-plus acquisition of a stake in Santa Monica’s Colorado Center — is the first step in establishing L.A. as its fifth core market.
Speaking at NAREIT’s REITWeek 2016 Investor Forum at the Waldorf Astoria in Manhattan last month, Thomas said L.A. fits the bill as the Boston-based real estate investment trust’s next market because “highs are generally higher, and lows are generally higher, from a rent perspective.” The nation’s largest office REIT is already active in its hometown, as well as in New York, Washington, D.C. and San Francisco.
Thomas said the REIT will look to “create additional yield” at the 1.1-million-square-foot Colorado Center via increasing the complex’s occupancy and replacing current below-market rents as leases roll up. It also intends to use the acquisition as an opportunity to gradually step up its presence in L.A. Thomas said the company will look to grow its team and personnel in the market “incrementally over time,” with the goal of having L.A. “become the fifth market for Boston Properties.”
The historic “Spruce Goose” hangar, where Howard Hughes built planes in the 1940s
Google closes on ‘Spruce Goose’ hangar
In 2014, Google spent almost $120 million on 12 acres of land adjacent to the “Spruce Goose” hangar in Playa Vista, where Howard Hughes built his famous airplane.
Now, the tech giant has fully leased the hangar itself. Sources with knowledge of the transaction told TRD that Google and landlord Ratkovich Company recently closed a lease deal for the 319,000-square-foot hangar at 5865 South Campus Center Drive. It was built in 1943 for aircraft assembly and has more recently been used for soundstages, set design and various elements of production. The hangar sits on the Hercules Campus, owned by Ratkovich and partner Invesco.
The Spruce Goose office will greatly increase Google’s footprint in L.A. It already leases 100,000 square feet across three buildings in Venice, including the 69,000-square-foot Binoculars Building, designed by Frank Gehry. It also has a 41,000-square-foot YouTube production facility in Playa Vista.