Los Angeles Better Poised than Other US Cities to Withstand Economic Slowdown
By: Olive HIll Group
Lee, whose commercial real estate firm specializes in operating and repositioning creative office properties in Los Angeles, cited several factors unique to the city that will insulate most industry sectors and submarkets from a slowdown.
"The Los Angeles economy is dynamic," said Lee. "You have entertainment, content creation, tech and defense contractors and a strong services and tourism industry. This diversified economy should hold up well if a couple of these local industries experience a slowdown."
The influx of tech giants from Silicon Valley into Los Angeles also bodes well for Los Angeles' ability to weather a potential downturn.
"Many of these tech companies have recently established significant footprints here and that's going to help because tech usually likes to create their own ecosystem," said Lee, whose tenants include Oracle, Ipsos, XG Productions and interactive entertainment studio White Elk.
Furthermore, as tech heavyweights have morphed into providing screen-based entertainment, the importance of close proximity and access to the content creation infrastructure in Los Angeles—the de facto "entertainment capital of the world"—to compete with traditional entertainment companies, like Disney and Warner Bros., is crucial.
In terms of impact on the office sector, Lee expects most submarkets, in particular West Los Angeles where many tech and streaming content providers have chosen to set up shop, to remain stable.
Downtown Los Angeles, may not weather a downturn as well. According to statistics from CBRE's third quarter 2019 report on the Greater Los Angeles office market, vacancy rates downtown stood at 18.6 percent—leading all submarkets. The report attributed the spike to a consolidation of financial tenants downtown and the reduced need for space, most notably Union Bank, which agreed to reduce its footprint by 50 percent at Union Bank Plaza in 2020.
Even so, Lee said while vacancy rates may tick upwards and investor returns dip, the revitalized downtown submarket should avoid a "fire sale" situation and that overall, Los Angeles will remain a "vibrant area for people to invest businesses in."
ABOUT OLIVE HILL GROUP
Founded in 2016, Olive Hill Group is a vertically-integrated commercial real estate firm that acquires, transforms, and manages creative office properties for high growth industries. For more information please go to http://www.olivehillgroup.com
DB&R Marketing Communications, Inc.