LOS ANGELES-In a NAIOP SoCal first, the organization polled the audience at its spring breakfast program to decide which economy—Orange County or Los Angeles—was in the lead. Surprisingly, 70% of the audience—made up mostly of L.A. residents—said that Orange County’s economy was in the lead.
The market-to-market match-up was hosted by KNX 1070 News’ Frank Mottek along with USC’s Richard Green, professor director and chair of the USC Lusk Center for Real Estate, and Kerry Vandell, director of UC Irvine Center for Real Estate at the Paul Merage School of Business, who were on hand to provide insight into both market discussions.
Mottek began the discussion by pointing out that home sales were up, according to recent numbers, a statement that was also echoed by a GlobeSt.com article that very morning. Next up, he asked the audience a few questions including which industry had the largest year-over-year job increase in L.A. in 2011, where the audience believed it was in education and health services, although the correct answer was in professional and business services.
When asked which industry had the largest year-over-year job increases in Orange County in 2011, the majority of the audience—47%—guessed professional and business services, while the correct answer on that one was in leisure and hospitality.
According to Vandell, in terms of housing, it has hit bottom and will take a year or two before real growth both in Orange County and in L.A. “The economy is definitely on the rebound, but jobs are lagging and that’s to be expected,” he said. “We are producing the same with fewer jobs, having said that, there has been very clear job growth in a number of sectors both locally and nationally.”
The job picture in Southern California in the last few months has been disappointing, added Green. “Job growth is very localized,” he said. “If you look at the Bay area for example, job growth has been quite robust, but other particular segments of CA have just been OK. We are certainly not seeing robust job growth in this neck of the woods [L.A. and O.C.],” he added.
As for housing, Green pointed out that distressed sales remain very high, but said that there are a lot of cash buyers out there. “At the end of the day, it’s a good thing for the housing market because it is clearing out inventory,” he said. “What would help the housing recovery is speeding up the mortgage process.”
On the office market front, Green said that there have been small amounts of recovery but said that vacancies are still well above the level of building anything any time soon in Los Angeles. “Part of that is because of the cost,” he said. “People are looking to reduce their rents and firms are being much more careful in how they are using their office space.” He points out that it went from 250 per square foot per person a few years back and now stands around 150 per square foot per person. “The amount of office space a firm needs is around 30% less.” He added that given the way the land markets work in L.A., and other “seismic issues,” making office towers work any time soon in L.A. is “a difficult proposition.” One of the great opportunities in Orange County, according to Vandell, is some of the smaller office space for new firm formation, “which is encouraging.”
When Mottek asked the audience which county is predicted to have the highest office rent growth in the next six years, 70% said Orange County—which was the correct answer, according to Mottek. “The problem is that L.A. county is so huge and the submarkets are so different from each other,” said Green. “Glendale, for example, is suffering…Orange County’s office market is much more concentrated.”
When asked about incentives for growth, Vandell pointed out that Orange County is generally declining in terms of attractiveness for business, but relative to L.A., he said L.A. is worse. “Both counties are down in comparison to other cities around the county,” he said. “The problem is the cost of doing business, the cost of housing to attract the right workers, and the tax structure in particular…it is creating serious problems in terms of our competitiveness.”
According to Green, one great thing L.A. has going for it is its entrepreneurial spirit. “California looks really good to foreign entrepreneurs,” he added.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
