Residential, commercial and industrial real estate markets in Long Beach and throughout Los Angeles County continue to experience high demand, with both domestic and foreign investments in development projects ramping up.
Over the past few years, single-family housing in Long Beach and statewide has been in short supply and high demand – dynamics that seem to become more pronounced as the recession fades further into hindsight. As a result, sales prices of single-family homes continue to increase.
“I think we are still dealing with homeowners who have no desire to sell if they feel as though they can continue to recover equity that they may have lost during the Great Recession,” Robert Kleinhenz, economist and executive director of research for Los Angeles-based firm Beacon Economics, told the Business Journal. This may be a cause of the impaired inventory of homes in the county and the state, he noted.
In Los Angeles County, only 28% of the population can afford the median price of a single-family detached home, according to Kleinhenz. Given current lending standards, Kleinhenz estimated that a household would have to earn roughly $100,000 per year to afford monthly payments for a median-priced home, which is about $549,000 in L.A. County.
William Yu, economist for the UCLA Anderson Forecast, noted that the Federal Reserve is expected to raise interest rates two to three times this year, although in modest increments. The prospect of rising interest rates should trigger even more heightened demand for housing, Kleinhenz said.
While the state is contending with a housing supply problem, construction of new housing – particularly single-family projects – is often hindered. “Because of the California special CEQA regulation, we have this kind of not-in-my-backyard mentality for most of the county,” Yu observed, referring to a state regulation that requires stringent environmental assessment before developments can move forward. “So it’s very difficult for a developer to get a permit to build to meet the demand.”
Kleinhenz also pointed to CEQA as an inhibitor of new housing. “So that’s a challenge that Long Beach and just about every city in coastal California has to deal with – the idea that it’s already a pricey place, and inhibiting construction of new homes of any kind is going to inhibit affordability,” he said.
New multi-family developments planned in Long Beach will add some much-needed housing stock to the market over the next few years. Long Beach has seen an injection of private investment into the multi-family sector, according to Petra Durnin, Southern California director of research and analysis for CBRE. There are dozens of multi-family and mixed-use projects planned and underway, mostly concentrated in downtown.
“Long Beach has had everything in place for a revitalization for so long, and now it is actually coming to fruition,” Durnin told the Business Journal. “So as this area continues its revitalization with new housing and new amenities, that in turn brings new office opportunities, occupiers, companies and investors.”
Local real estate agents report that sales of existing multi-family properties seem to be increasing despite short supply. Rents continue to rise and interest rates remain low, making the properties appealing to investors.
The South Bay region as a whole experienced a sharp decrease in office space vacancy rates in the first quarter. In the South Bay, vacancy rates decreased from 18.75% to 14.8% from the first quarter of 2016 to the same time this year, according to Kleinhenz.
In Long Beach, the vacancy rate of office space decreased by about 2.4% in the first quarter of 2016 to the same time this year, according to data from Cushman & Wakefield. The real estate firm’s quarterly report notes that the 100 Pine Ave. office building was removed from the overall market supply, as it is going to be converted to residential units.
Durnin speculated that as technology and aerospace firms continue to grow throughout the South Bay, they might eventually turn to Long Beach. “It is important to note that as these tech and tech-related companies are growing and emerging, they are looking for the next great submarket to be located in,” she said.
“[Long Beach] has got the housing, it has got a live-work-play environment,” Durnin said. “I think that’s why it is on everyone’s radar right now. . . . It has got that vibe, it has got that feel. It has got those amenities that will really make it viable for these creative types that are out there looking for the next cool environment.”
The vacancy rate of retail space in Long Beach is relatively flat, according to local real estate professionals. Retailers large and small are being forced to evolve thanks to the increasing desirability of online shopping.
“The reality is the industry as a whole is evolving and becoming more efficient and working to meet the changing needs of consumers,” Durnin said. “And that may mean going from a storefront to an online presence, or opening a storefront to support your online presence.”
Retail spaces are becoming increasingly experience-driven in order to offer something that the Internet cannot, according to Yu. Retail projects planned and underway in Long Beach, including the future 2nd + PCH project and the repositioning of City Place as The Streets, are focused on creating walkable, visually appealing environments that people will want to stay and play in, rather than simply visiting to go into a store and leave.
The overall vacancy rate of industrial properties in the South Bay is now below 1%, according to Kleinhenz. “It’s hard to believe vacancy rates can get as low as they have over these last several quarters,” he said. A strong manufacturing base in the region, reliant in large part upon the aerospace sector, as well as new demand for space to cultivate marijuana and the ongoing strength of the regional goods movement industry, are likely driving down vacancy, he observed.
Durnin pointed out that the growth of online retail is likely creating more demand for industrial space as companies seek to satisfy their customers with quicker delivery service by creating more distribution centers.
Overall, Kleinhenz is forecasting stability for the regional real estate markets, citing continued economic growth. “There is just no reason to think at this point in time that a recession is on the horizon,” he said.