Tenants Realize Downtown L.A. Retail Potential

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LOS ANGELES—Many cities across the country are seeing an influx of retail real estate activity in their downtown cores, and Los Angeles is no different. As many industry observers know, retail follows rooftops, and with an influx of new residents moving to Downtown Los Angeles, major national chains are taking note.

“It’s becoming a little bit of a tidal wave,” Carlos Lopez, president of HI Urban Retail Advisors, a division of Irvine, CA-based Hanley Investment Group (RECon booth N789Y), tells us. “Almost on a weekly basis there are announcements about new retail tenants coming to that market.”

Spain-based apparel chain Zara and Whole Foods Market are soon to come into the area, and Urban Outfitters and Ross Dress For Less are among the more recent national retailer additions downtown. Lopez says that the Broadway corridor, from Olympic Boulevard to Third Street, are especially ripe for new retail and Lopez likens it to the Meatpacking District in New York City at the early stages of the development of its neighboring High Line elevated park. A specialist in urban retail markets, Lopez knows what he is talking about in Downtown L.A. He recently sold the retail portion of The Library Court building located at the intersection of 6th and Hope streets, and early last year, Lopez sold the 55,000-square-foot Ralphs @ Market Lofts located on West 9th Street, which featured a Ralphs Fresh Fare and six other retail stores.

Much of Downtown L.A.’s retail expansion has to do with an increasing residential population in the area. The average household income there, Lopez says, is $90,000 and college educated. Many of the downtown residents are students at the University of Southern California.

“It’s amazing,” Lopez insists. “Now a great populous of the residents who live in the city are also USC students. Living in Downtown L.A. has become a viable alternative to living in student housing and being on campus. That was unheard of back when I was a student at USC.”

A lot of this activity helps to push up rents and lower vacancy rates. Transaction activity helps as well. Investors coming from Asia, Canada and New York City and other areas are acquiring and renovating buildings. One example includes the recent acquisition of the industrial Coca Cola bottling plant in the Arts District, which is slated to have ground-floor retail and creative office space. The Arts District, in particular, is a hot area for firms looking to place capital, Lopez says.

Creative office is another trend happening in Downtown Los Angeles that could attract more tenants. That will be especially helpful in an office market that has plenty of empty spaces and a vacancy rate that consistently hovers around 25%, Lopez contends.

“It’s interesting because you have ground-floor retail, with office space above, which may not be occupied in many buildings,” he says. “That’s been a little bit of a challenge for some of the owners in their negotiations on [Broadway]. The question is how do you adapt the upper floors and what that costs. For some, that’s a variable that’s a little bit of an unknown.”

One draw that could attract more workers to the area if the office conundrum is solved is that Downtown Los Angeles has access to public transportation, eliminating the hassle of dealing with the area’s well known traffic nightmares. Lopez says he sees other locales with public-transportation access, such as Hollywood, Pasadena, Santa Monica, and Venice, get an office-occupancy boost for this reason.

If investors aren’t interested in the challenges of renovation, though, ground-up development is certainly a possibility in Downtown Los Angeles, where, maybe surprisingly, there is still vacant land that can support new construction.

“There is a lot of development slated to come online,” Lopez says. “Barring any situation in the capital markets, the horizon is endless because we have a great deal of land and building potential that hasn’t even been touched.”

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