One of the most important things to think about when renting or leasing a commercial space anywhere, not just in Downtown LA, is to have a prediction of what rent rates will do in the future. This prediction should be based on true information taken from a wide base/sample to ensure that the depiction it creates is generally representative of the market overall. This prediction should be used to forecast whether rent rates for the potential space for one’s business will go down or up in the future. With this information, one is able to plan and minimize one’s business’ future over-head cost with the hope and intention to earn overall greater profits in the long run through rent savings. How can someone today do exactly this effectively? When it comes to Downtown LA commercial real estate rates, three things to keep in mind are the growing numbers in the residential population in Downtown, the conversion of industrial buildings with sewing tenants into residential lofts in Downtown, and the growing popularity of creative space.
For the Downtown LA commercial rental market, one special piece of information is very influential, and that’s what the residential movement is doing. The residential bubble burst in 2006/2007 and the economy was in steep decline. At this time the residential market was rich with bank owned foreclosures and short-sale listings. Commercial building owners were basically killing themselves from stress over their financial losses as they saw their equity plummet. But surprisingly, at the same time, overall demand for residential housing in Downtown Los Angeles was beginning to snowball.
And it’s still growing. The effect of this growth is that the real estate market overall is benefiting. Growing residential life means a growing business economy. Products and services offered to the residential population are experiencing the benefits. The growing business economy results in stimulating the commercial real estate market in Downtown. With more people living in Downtown comes more people working in Downtown.
Also, recently, public perception of the general economy is improving, which is a nice change from the economic pessimism that has been so ubiquitous in the last few years. Downtown has become the “popular” and “new cool place” to be in Los Angeles. With growing popularity comes increased demand, with increased demand for a particular location, property rent rates in that locations go up.
The second phenomena occurring that one should consider when predicting future commercial rent rates in Downtown relates to the first. With the increase in residential demand, commercial & industrial buildings are kicking out all their tenants to be converted into residential lofts. For instance, many owners of industrial buildings with sewing tenants have kicked all their sewing tenants out in order to renovate their buildings and convert them into residential lofts.
All these kicked-out commercial tenants have been absorbing the previously large vacancy in raw commercial and industrial space. As a result, sewing space rent rates have reached a new high and it’s harder than before to get sewing space and industrial space in Downtown in general. This scarcity is creating increased commercial rent rates. And since raw commercial and creative space that sewing tenants use makes some of the best creative office space, these sewing tenants have to compete with the influx of artists, photographers, designers, and other creative types to get into this space. This increased scarcity of creative space creates increased rent rates.
A third reason creative office rent rates will rise is that traditional office space is becoming less and less popular with regard to aesthetic look as well as layout & orientation. Traditional office space is perceived as constrained by an antiquated style and a less collaborative platform from which to work. As a result, the perception of value of traditional office space is becoming diminished. The overall rigidity of what the traditional dropped ceilings and commercial carpeting represents to many people is exactly what they do not want: a stigma of constraint and inability to allow for the new and random that out-lies traditional expectation of the past.
It’s important to note that I may be biased because most of my clients are creative types and not lawyers or accountants. But I have rented creative office space to some lawyers and accountants. A growing trend is a more open, collaborative, and engaging layout. Many tenants are seeking not only a place to work but a social mechanism for improving their business through networking and sharing. The age of the cubicle isn’t nor will be extinct, but there are becoming less members of that species as creative and historic buildings are made available to today’s tenants. This rise of popularity of creative collaborative space and decline of traditional office space indeed indicates that rent rates of creative office space will continue to increase.
So yes, the growth in residential population in Downtown, the fact that raw commercial and industrial buildings are being converted into residential space, and the diminishing popularity of traditional office style and orientation are very crucial elements of predicting what the future holds for creative office and commercial real estate in Downtown Los Angeles. All of this indicates that rent rates will increase, so get into a long term lease now while the moment is right.