While confidence in the stock market wanes, Jack Kyser, chief economist for Los Angeles County Economic Development Corp., notes, "What impacts people's confidence is their employment situation, and LA County's unemployment rate is at the lowest level it's been since '69.
In February the state's unemployment rate dipped to a 20-year low of 4.5%, down from 4.6% the previous month."The stock market going nuts for a couple months has a macro economic impact on the nation's status quo, but it hasn't affected anything in California we're seeing so far," says Dan Bothe, SVP/Co-CFO for Los Angeles-based Arden Realty Inc., suggesting that the state's favorable employment stats are reflective of the overall real estate market, too.
Robert Peddicord, SVP leasing & perations for Arden, says his firm isn't worried about filling space vacated by bailing dot-coms or other nontraditional tenants. For example, a 100,000-sf space vacated by a technology firm at Arden's Howard Hughes Center was back-filled within 30 days at a higher rent. "This illustrates that there's still strength in the marketplace, still demand for space by traditional tenants," he contends.
Noting that all of his firm's 143 properties are located in California, Peddicord points out that the latest economic forecast by UCLA's Anderson School of Business predicted that if the economy slowed, California would continue to outpace the rest of the nation. "So far we haven't seen a slowdown here," he says. "If it happens, hopefully we'll ride it out better than the rest of the nation."
Whether the stock market's ups and downs will cause investors to place their bets on traditional investments like real estate is yet to been seen. Bothe, however, points out that RREEFs are well known for paying sizable dividends--about 8%.
Kyser says, however, that decreasing confidence in the stock market is more likely to increase investments in other traditionally safe places, like CDs and bonds. "The 1990s real estate crash is still etched in everyone's minds... people are still gun shy," he says.
He suggests though that investment in certain types of real estate does make good business sense. "There's strong demand for quality space and no more land to build." Kyser notes that the best property types are industrial/distribution space, apartments and then office. He warns, on the other hand, that retail is not. "Retail is scary for several reasons: there's too much strip and mall space now, and Wal-Mart, K-Mart and others (super stores) are rationing up. If that's not a recipe for a blood bath, I don't know what is."
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