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News release

LOS ANGELES

Technology, Entertainment and E-Commerce Key to Bringing Life to Los Angeles Commercial Real Estate Market in 2013

Jones Lang LaSalle’s 2013 Los Angeles Forecast reveals that hotels and multifamily will lead investment recovery


LOS ANGELES, Jan. 16, 2013 – Growth in the Los Angeles commercial real estate market in 2013 will be characterized by a variable recovery with hotels and multi-family leading the way, according to Jones Lang LaSalle who recently hosted its annual 2013 Los Angeles Forecast.

The office sector is likely to continue its recovery facilitated by growth in the entertainment/media and technology sectors. The industrial market will continue to flourish with e-commerce making a significant impact on the market in 2013.

“With the presidential election and fiscal cliff issues behind us, the Los Angeles commercial real estate market will see some continued improvement in 2013 with tenants and investors having a more focused business plan,” said Peter Belisle, Jones Lang LaSalle’s Southwest Region Market Director. “With increased economic stability, we expect that Los Angeles will add approximately 80,000 jobs in 2013, with the unemployment rate declining from 11.2 percent to 9.7 percent.”

Attended by approximately 600 executives, the event featured insight on the current commercial real estate landscape and trends, as well as perspectives on the outlook for what lays ahead in 2013. Speakers included Stan Kasten, President of the Los Angeles Dodgers; Tony Nastis, Chairman of Allen Matkins; Roger Staubach, Executive Chairman, Americas of Jones Lang LaSalle; and Lauralee Martin, CEO, Americas of Jones Lang LaSalle. The event also featured a landlord and tenant point/counterpoint panel discussion with Jones Lang LaSalle's Mike McCrary, Peter McWilliams, Tony Morales and Carl Muhlstein.

"Assuming the remaining fiscal cliff issues are addressed in a manner that will not derail continued expansion in the economy, 2013 should bring continued growth across most sectors of the economy, driving job and income creation and leading to modest but continued improvements in the rates of unemployment locally, across California, and nationally," said Los Angeles Economic Development Corporation Chief Economist Robert Kleinhenz.

Property type forecast summary

  • Office: The Los Angeles office market is expected to continue on the path of recovery in 2013. As employment conditions improve, space demand will follow. Based on current requirements, JLL expects tenants to absorb two million square feet of office space in 2013, pulling vacancy down one percent from 18.2 percent. The Westside, driven by technology companies, is expected to outperform the overall market over the next 12 months. As technology and media tenants grow, utilization of space will become more efficient and dense. Although vacancy will decline by one percentage point, rents are expected to increase moderately. However, tenants will continue to have strong leverage in negotiating concessions. Capital markets will see a rebound as Los Angeles pricing looks relatively attractive compared to other gateway markets. Foreign investors are likely to target mid-rise product and seek lower entry points, although we do expect to see trophy assets trade in 2013.
  • Industrial: Tenant demand for new Class A warehouses in excess of 300,000 square feet is rampant, and will give rise to new construction in the Inland Empire, which is expected to have 11 million square feet underway by the end of 2013. In Los Angeles, more than 2 million square feet of in-fill product will be in development in 2013. Demand for high-cube warehouses will elevate absorption numbers and apply upward pressure on rents. The majority of absorption gains will be in the Inland Empire, where product of this nature is more readily available. Based on this market’s big-box construction, permit-ready land sites, and immediate proximity to ground and air cargo facilities, e-commerce is the tenant profile to watch after several significant leases were signed in 2012.
  • Retail: Trendy grocery-anchored centers and centers with a merchandise mix of good restaurants, entertainment, and convenience will be the leaders in Los Angeles in 2013. Discount and up-scale grocers will continue competing for market share with traditional grocers in 2013. In other segments, retailer expansions will be sluggish. On the investment side, Los Angeles retail sales volume during the first nine months of 2012 was $2.2 billion, up 120 percent over the same time period a year ago. For 2013, the focus of multi-tenant investors will be on centers in better locations with strong anchor tenants. A limited supply, coupled with banks willing to hold and underwrite non-performing assets, will moderate transactional volume in 2013. Within five years, the percentage of U.S. transactions at traditional brick and mortar stores versus alternative channels is expected to drop from a market share of 91 percent to 76 percent. To remain competitive, many big-box retailers are adjusting their business models and physical footprints.
  • Multifamily: Economic headwinds have had a positive effect on the multifamily sector, propelling apartment fundamentals forward in Los Angeles with consistent gains since mid-2009. Currently, the average occupancy rate for the region stands at 94.4 percent, and continued strong performance through 2013 is expected. While Los Angeles has had to adjust to the added inventory caused by deliveries which broke ground in the last two years, apartment demand is expected to remain healthy in Los Angeles through 2013 and well into 2014. Investor demand is high as transaction volume continues at a more robust pace than that of 2011. Sales volumes through November of 2012 totaled $5.9 billion, which is an 82.1 percent increase over 2011. The Los Angeles market is ranked second in the nation in terms of year-to-date sales volume.
  • Hotels: Los Angeles ranks in the top 10 markets in terms of revenue per available room, and we expect this positioning to continue. Transaction volume in the Los Angeles market totaled nearly $400 million in 2012 and JLL expects this heady pace to continue in 2013. Sought after hotel assets will include branded, high-quality hotels in urban areas proximate to multiple demand generators. Capitalization rates have reached a multi-year low and are expected to compress further in 2013, translating into higher values.

For additional expert insights, news, videos and research resources on what Los Angeles can expect in 2013, please visit http://bit.ly/11uHhyN.

For more news, videos and research resources on Jones Lang LaSalle, please visit the firm’s U.S. media center webpage. Bookmark it here: http://bit.ly/101H2uT.

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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE: JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit www.joneslanglasalle.com.