Sales and lease prices in all real estate sectors in Long Beach are continuing to increase due to strong demand to live and work in the city, according to economists and real estate executives. In general, trends in the Long Beach markets are reflecting those throughout Southern California, although some are experiencing more dramatic activity than in other regions.
As in most of the state’s populous cities, Long Beach’s single-family market has been characterized in recent years by high demand and low supply, factors that continue to drive up sales prices. According to Robert Kleinhenz, economist and executive director of economic research for Beacon Economics, the median sales price of single-family homes in Long Beach increased by 13.8% in May compared to the same month in 2018. By comparison, the median price of homes within Los Angeles County increased 8.1%. It is possible that the median price increased sharply in Long Beach because more higher-end homes have sold recently, he noted.
Even so, Kleinhenz cited the lack of homes for sale in Long Beach and the greater region as the main cause behind price increases. Kleinhenz noted that the inventory of available homes is low for two reasons. One is that existing homeowners have been slow to put their homes on the market. “They are probably still trying to recover lost equity or are trying to get further ahead before they sell,” Kleinhenz said, explaining that home values dipped by as much as one-third in Long Beach during the Great Recession. Homeowners who wish to trade up into a more expensive home must gain additional equity in their property beyond that lost in the recession, he explained.
The other issue is that Long Beach, like most California cities, is not building enough new residences to meet demand. “The city has been falling quite a bit short of those housing requirements for probably 20 years at least,” he said. “This is not rare. Just as of the beginning of this year, 97% of the cities in the State of California fell short of housing requirements that were specified by the regional housing needs assessment process,” he noted, referring to a process undertaken by the Southern California Association of Governments. Most housing being built in Long Beach is in the form of apartment buildings in downtown, which does not alleviate the supply problem in the single-family market, he noted.
Rental rates for Long Beach apartments continue to increase, according to real estate professionals from firms such as Marcus & Millichap, Centennial Advisers and Stepp Commercial. Sales volume of existing multi-family properties is at a high. “Multi-family continues to be one of the most sought-after asset classes. Transactional velocity remains very high in Long Beach,” Damon Wyler, regional manager of the Long Beach and South Bay offices of Marcus & Millichap, said.
“We are seeing Long Beach become more of a regional or even national attraction as far as new capital,” Wyler said, referring to investments in the city’s multi-family properties. “The cat’s definitely out of the bag as far as the long-term, underlying value of Long Beach real estate. It’s one of the last coastal locations to experience rapid rental growth and gentrification.”
Petra Durnin, director of research and analytics for commercial real estate firm CBRE, said that Long Beach is attractive to multi-family developers because of its proximity to transit, its character as a live-work-play community, and its unique vibe. “You don’t feel like you’re in a sterile pre-planned community [in Long Beach],” she said. “It has got a little bit of grit, it has got a little bit of edge to it. And that’s what people are really looking for. They want something unique.”
Long Beach’s commercial markets are also experiencing dynamic activity. Wyler said that demand for office space in Long Beach continues to steadily increase. “It was the last product type to benefit from this last real estate cycle. However, with the economy having performed as well as it has, [coupled] with limited new supply, we have seen vacancy really close to all-time lows,” he said.
Changes in office layouts are playing into market dynamics, according to Wyler. “We’re definitely seeing changes in the way office space is configured and the types of office space that are in demand,” he said. “You’re seeing slower demand for [Class] B and C office. Class A office remains in high demand, as does medical office. And we’re also seeing newer products where they are conversions from old industrial space.”
Industrial space in Long Beach remains in high demand, with little product available. According to Kleinhenz, the overall vacancy rate for industrial space in the South Bay, which includes Long Beach, has remained below 1% since the 3rd quarter of 2015. The strong demand for industrial space is largely driven by activity at the ports and supporting logistics industries, he explained. The San Pedro Bay ports are on track to break their all-time records by year’s end. Through the first half the year, job counts in transportation and warehousing in L.A. County increased 2.6%, equating to about 4,600 jobs, he added.
Long Beach continues to see investment in its retail sector through the development of the Long Beach Exchange retail center at Douglas Park and the 2nd & PCH project in Southeast Long Beach. “The City of Long Beach probably has more retail than the marketplace can sustain, so you have businesses that are new and on the rise. They take their crack at the market, and if they outperform their competition, they have some staying power,” Kleinhenz said. “While there are new retail centers opening up, we’re not seeing any sort of a boost in retail employment,” he added.
In general, retail is in a state of transition, Durnin said. “Retail is made up of what we call the five Fs: fitness, furniture, fashion, food and fun. They are all intricately linked. So retail has recognized that shoppers want more than just a store with product and sales,” she said.
“They want an experience that encompasses more choices, some flexibility, more related offerings, which is where the five Fs come into play.” She added, “You want more things tied into your retail experience. And I think retailers are responding to that.”