By Brandon Richardson, Senior Writer
Continued low interest rates are keeping residential and commercial real estate markets healthy, according to local experts and economists, who noted rates did not increase as expected last year. Sales and leasing activity is increasing across all property types. The exception is the single-family market, which has experienced decreasing sales and increasing inventory in recent months.
“We saw that in 2018 the housing market was at a transition point where would-be homebuyers were put off perhaps by interest rates that were headed up – although, they never really headed up by much,” Robert Kleinhenz, economist and executive director of research for Beacon Economics, said. “Home prices . . . rose throughout last year, giving rise to a slower pace of home sales. But at the same time, sellers were angling to put their homes on the market in greater numbers.”
The California Association of Realtors reported 3.2 months of inventory – meaning that all single-family homes on the market would sell within that time period given current demand – in December, compared to 1.7 months one year prior, Kleinhenz said. In Long Beach, home sales decreased 8% last quarter compared to the fourth quarter of 2018, while the county experienced a 12.5% decrease, he added. Because of this slowdown, Kleinhenz said he expects home prices to soften during the first part of the year.
Richard Green, director of the USC Lusk Center, said that in the next couple of years he would not be surprised if housing prices in L.A. County decreased 5% to 10%. Increasingly, home sellers are being forced to lower their list prices as more and more homes sit on the market for extended periods of time, he noted.
The unemployment rate remains below 5% at both the county and city level, which bodes well for the local housing market, Kleinhenz said. Softening interest rates and higher wages should increase demand for single-family homes, he explained, especially considering ever-increasing average rents reaching $2,000 or more in Long Beach and surrounding areas.
The statewide housing affordability index showed that 28% of Californians could afford the median price of $576,000 for a single-family home during the last quarter of 2018, Kleinhenz said. As a result, financing options that allow for less than the traditional 20% down payment have become more common, Kleinhenz noted.
The Long Beach multi-family market has been consistent for several years, according to Bobby Peddicord, head of CBRE’s South Bay office. He explained that people priced out of West L.A. and surrounding markets such as Santa Monica see Long Beach as an affordable alternative, both for owners and renters.
Investment in multi-family properties is strong and increasing in Long Beach, Peddicord said, noting that sales prices and rental rates have continued to increase. “We’ve seen a steady increase in rents but not those crazy spikes that we have seen in the Santa Monica or Venice markets,” he explained. “The flip-side is if we were to go into a little bit of a slower market, we’re not going to see the drastic drops that we have seen sometimes on the west side.”
At the state level, domestic and international migration into California is down, according to Green. In fact, he said that more people are moving out of the state than are moving in.
“It makes one wonder if we’ve hit some sort of tipping point. International migration is down and you might think that’s a function of some of Trump’s rhetoric,” Green said. “But the bigger impact is there’s just far more domestic outmigration than there has been in years past. You wonder if the cost reached such a high level that despite the fact that there are lots of jobs here, people are just leaving to go live in a cheaper place.”
The migration of about 90,000 people out of California translates to around 30,000 fewer homes needed in the state, when you factor in people who live together and children, Green said. Because of the large population of the state, 30,000 homes is not an “enormous” figure, he added. However, if this trend continues, over the course of several years, it could have a more meaningful impact on the multi-family market.
Job growth has had a positive impact on the office real estate market in L.A. County, bringing vacancy to a healthy level, according to Damon Wyler, vice president and regional manager of Marcus & Millichap’s Long Beach office, said.
“One of the biggest trends in office is geared toward denser workspace with more amenities, common areas and gathering spaces,” Wyler said. “We’ve seen a lot of industrial buildings adapted for new office programming. You might look in and see everyone working on bench seating and also see a ping-pong table somewhere out in the common area.”
“The workforce is generally younger with the Millennials having entered in full force, and the companies and employees seem to enjoy a collaborative environment,” he added.
Traditional office buildings with separated offices and cubicles are struggling with higher vacancy rates than creative, collaborative space, Green said. Companies are using less square footage per employee, he explained. Traditional office buildings that have undergone renovations into creative space, such as 211 Ocean in Downtown Long Beach, have had strong leasing success, he noted.
In the retail market, Wyler explained that the narrative continues to be “what is or is not Amazon-proof,” referring to the online retailer’s ever-increasing sales numbers. He noted that retailers with business strategies that incorporate both a digital and physical presence are the most successful in today’s economy. Food is playing a large role in new retail developments due to the experiential nature of dining out, Wyler added.
“Restaurants are proof that humans are irrational because making them work is really hard,” Green said. “It’s a very, very tough business. As an amenity to draw people into [retail centers] to get them to buy stuff, they make lots of sense. But if it’s what you’re relying on to make your shopping center, I don’t see how that works.”
With the introduction of numerous multi-family residential developments in Downtown Long Beach and a push for increased housing development statewide, Peddicord said retail could experience a surge in investment and leasing. Long Beach’s central location to L.A. and Orange County markets make it an ideal location for retail developers and users, he added.
While e-commerce continues to be detrimental to brick-and-mortar retail, Green said it is fueling the industrial market, particularly around the ports of Long Beach and Los Angeles. The need for warehouse and distribution space is directly tied to increased online sales, he explained. However, coastal cities are short on developable land to produce additional industrial space. “That’s why we’ve seen this tremendous explosion of industrial space in Riverside and San Bernardino counties,” he said.
Peddicord said the industrial market has experienced a slight slowdown in terms of the number of offers being made when space becomes available. However, he said for-sale and for-lease properties are still likely to receive three or four offers from prospective buyers and tenants.
“I continue to be very optimistic about industrial [real estate], but if we really get into a trade war with China – if Trump raises tariffs from 10% to 25% – that could be a real threat to the industrial market in Southern California,” Green said. “That’s political risk and I don’t know what’s going to happen. That is the one sort of black spot for the industrial market.”
The original article can be found here.