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The Current State of DTLA: Q&A with CBRE’s Jessica Lall

The Current State of DTLA: Q&A with CBRE’s Jessica Lall

The Current State of DTLA: Q&A with CBRE’s Jessica Lall

The Current State of DTLA: Q&A with CBRE’s Jessica Lall

Downtown Los Angeles and Los Angeles in general continues facing both economic and commercial real estate challenges. But there are also reasons to be optimistic. CBRE’s Jessica Lall will be a presenter at the upcoming Connect Los Angeles 2023 event. Lall sat down with Connect CRE to answer questions about current CRE issues in DTLA.

Connect CRE: How is commercial real estate fairing in DTLA following the difficult pandemic years? What are some bright spots and challenges?

Jessica Lall: Downtown LA these days is in kind of a perfect storm. First, we’re seeing loans maturing at an inopportune time. There’s a lot of uncertainty about return-to-work and what that looks like. As a result, occupiers are more interested in shorter-term deals. They’re avoiding longer-term commitments until they know how things will shake out.

Second, there’s the perception of downtown being unsafe. There’s a lot of issues contributing to the uncertainty and the desirability of having office space there. As an example, if we can get more people back on the streets I the downtown area, that could help solve many of the ancillary issues we’re seeing right now. The more people who are on the streets, the higher the perception of safety.

Having said all of that, there are opportunities. Some of our clients are being creative about work space, and this goes beyond just paying for lunches. We’re seeing changes in office space that will help and improve back-to-work. , and that’s the kind of thinking that will help improve and encourage back-to-work.

Also, while CRE as a whole is impacted by the economic environment, not all sectors are going through the same pain. Office, certainly. But industrial and multifamily, not as much. So what we’re seeing is some office-to-residential conversions where it makes sense. Conversions into hotels are also taking place. We need to think a little beyond residential and other uses, like childcare or educational facilities so we could repurpose some of that downtown office space.

So the overall viewpoint is that office comps are at a low point, which can benefit occupiers and even investors. If they can get in and weather the storm, they’ll be in good shape. There are some opportunities for reuse. And overall, the long-term future for downtown is bright. Our urban centers need to thrive, and they always bounce back. They’re adaptive and resilient.

Connect CRE: Talk a little bit about the current economic issues that might be impacting the DTLA real estate landscape?

Jessica Lall: Back-to-work is still an issue. The mandate to return is still kind of choppy, and many don’t go into effect until later this year. That’s challenged downtown more than maybe other places or submarkets. As I said earlier, there are things we can do to help promote back to work, like making sure technology is better integrated with office space. We’re really kind of experimenting and seeing what works for our clients and trying to advise them around the data to help entice people to come back. The occupier sweet spot seems to be three days in the office and two days out.

Otherwise, the combination of a pending recession and ongoing interest rate hikes are massively impacting downtown real estate. The good news here is that while DTLA tends to be impacted faster and stronger, we also bounce back more quickly.

Additionally, we have a lot of building owners facing maturing debt this year. Compounding this is more expensive debt and tightening lending conditions, especially for the office sector. Owners who aren’t facing maturities are doing well and will for the next five to 10 years. They’re able to continue investing in their buildings. They’re attracting new tenants. I think what we’re really seeing is the difference between owners with immediate debt maturities and those who won’t be facing that issue for another few years.

Connect CRE: At one time, you were a commissioner with the Los Angeles Homeless Services Authority. Talk a little about current housing issues. Are things improving at all?

Jessica Lall: A lot of our current problems stem from housing affordability and supply. The issue right now is that we’re in a huge housing crisis. We can’t overstate just how important housing is. Let’s put it this way – we currently have 80,000 people living in DTLA, and eventually it will be upwards of 120,000. If you look at the labor demographics, the workforce is choosing to live down here or in close proximity. They need affordable places to live.

On the positive side, we have RENA – the Regional Housing Needs Assessment. In my previous job, we were active in pushing for those housing numbers to be accurate – you can’t address a problem if you don’t know what the problem is. That was a great first step. There’s now needs assessments and goals for cities.

But I think a lot of cities will struggle with how they execute on building more housing, especially if they don’t have updated rules and regulations to streamline the process. The City of Los Angeles is an example – we’re trying to get the community plans updated, but it just takes forever. This slows down housing development. Added to this is the market, interest rates and inflation.

So it’s great we have these goals. But I think we need to be more aggressive and creative, and act with urgency when it comes to streamlining housing construction. I think the state might have to come in because there are people in some cities that just don’t want more housing. That’s politics, and we need people at a higher level continuing to enforce housing construction mandates so we can meet goals.

Get insight from LA CRE leaders like CBRE Managing Director Jessica Lall. Attend Connect LA on May 3 at Hotel Indigo.

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