New Commercial Construction in L.A. Begins to Soften

New construction in Los Angeles began to soften in 2019, after hitting peak levels in 2017 and 2018. According to a recent report from JLL, Los Angeles continues to be a top market for commercial construction. It is ranked fourth in the nation, with 2.3 million square feet currently under construction. Interior repositioning projects, on the other hand, have continued to maintain momentum through the year, thanks in large part to demand and leasing activity from media companies.

“Interior improvement projects for commercial office space, hospitality and repositioning of buildings continue to keep the momentum that was picked up in 2018,” Anu Rao, VP and Los Angeles market lead of project and development services at JLL, tells GlobeSt.com. “The key players in the commercial interior requirement are the media companies like Netflix, Amazon, Apple, HBO being some of the biggest players in the market.”

This sector is expected to continue to grow next year; however, there will be a shift in the top submarkets. “The continued growth of the media sector will keep the tenant improvement sector busy throughout 2020 along with standard office lease renewals fueled by higher tenant improvement allowances,” says Rao. “From geography perspective, we are seeing the sub markets that were born in 2017/2018 in Hollywood, Culver city, Downtown Arts district and West L.A., are reaching their peak demand and tenants are moving towards Burbank and El Segundo.”

Construction costs, which had been a major challenge for developers, have stabilized this year, a trend that could be a good sign for increased development activity in 2020. “Cost of construction in the L.A. Market seems to have stabilized after a steep rise between 2017 and 2018,” says Rao. “The cost increase was driven primarily by demand as compared to increase in material costs. The labor force created by the peak construction in 2018 and 2019 will provide a strong base for steady growth through 2020.”

This year, media and streaming tenants drove demand for new space, but next year, the sectors driving commercial construction might change. “Sectors that are expected to continue to grow in 2020 are public works and education driven by available funding,” says Rao. “Adaptive reuse of spaces for creative office space continues to be of interest to investors and developers. Downtown art district, Hollywood to Culver City and south to El Segundo has many on going projects of this nature, which are slated to complete in two years.”

With the adoption of new technology, 2020 will also see more modular and prefab construction. “Modular construction and Building information modeling software saw a boost in investor money indicating the potential for these two areas to have the biggest long-term impact on the industry,” says Rao.