How Will the L.A. Office Market Survive the Next Downturn?11/21/2019
The Los Angeles office market is well positioned to survive the next downturn. Many industry leaders are warning against a recession in 2020, but L.A. office investors remain bullish on the office sector and confident that the market won’t shake during a downturn, if one should hit.
“Arguably, Los Angeles has one of the most dynamic economies in the country. The diversity of industries including technology, entertainment, aerospace, professional services and finance, which has been drawn here by the quality of life, has contributed to an increase in well-paying jobs,” Tim Lee, a principal of Los Angeles-based Olive Hill Group, tells GlobeSt.com. “In regard to the size of the region’s technology and entertainment sectors in particular, Los Angeles has also been a magnet to startups, many of which have grown or will grow to become major employers with significant space requirements.”
The industry and job diversity in the market is driving the city’s resiliency to a downturn. “One of the biggest factors is that Los Angeles benefits from one of the largest and most talented pools of skilled and educated workers in the nation,” says Lee. “While this has always been the case, in today’s society, there is a greater emphasis on innovation, and without talent, there is no innovation. As a result, more and more innovative companies are now relocating to Los Angeles in order to hoard human capital in what is a very competitive market for talent.”
The real estate market has adjusted to the new market dynamics. Investors and developers have brought new product types and office configurations to the market. “The Los Angeles commercial real estate industry has adapted to this by providing a balanced mix of long-term, flex and co-working spaces to meet the full spectrum of space users,” says Lee.
This is a different narrative than the last recession. The market is not only more prepared in its anticipation of the next downturn. Additionally, the next correction will have a much different look than it did in 2008. “I believe the market is more educated and prepared compared to 2008,” says Lee. “It is no secret that there is more liquidity in the market. Much of that is due to real estate owners and lenders taking a more conservative approach to leveraging assets with an increased focus on income. Additionally, unlike in years past, there is a greater balance between supply and demand across all asset classes and we are not seeing the overbuilding as we did in the past. As a result, any economic slowdown we experience in the future should be a softer one.”
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