Back in 2015, as development in DTLA was reaching unprecedented levels, with over 10,000 units under construction by Q3 of that year, we came to believe that 2017 and 2018 would really be “prove it” years for the Downtown market. Could it absorb that level of inventory? Could it make the leap from exciting revitalization to major expansion?
By the end of 2017, following a great wave of over 2,800 units hitting the market in 12 months that led to an increase in the vacancy rate from 5% to over 15%, there was some understandable skepticism about the real strength of the market. Had we witnessed the cresting of that wave followed by the inevitable and painful crash? Or could we continue to ride as it reached new heights?
At the time, I did several interviews with reporters who pointed to those rates and the dreaded “concessions” property owners were making as evidence that the end was nigh. I argued that it takes 6-12 months to lease up a new building, so if a half dozen hit the market at once, you should expect the vacancy rate to spike and for some leasing agents to respond with discounts.
The larger point is that those isolated data points don’t reflect the bigger picture – the increasing appeal of the city center and the commensurate demand for housing. So as the occupancy rate pushes right back up into the mid-90s to start 2018, concessions recede, new projects enter an already full pipeline, and that bigger picture is coming back into focus.
And what that picture shows is that we are no longer just talking about the revitalization of LA’s Downtown, but about the building of the City of DTLA. Phase one of the Downtown renaissance took it from 18,000 residents to almost 70,000. Phase two will take it to 200,000 and beyond, more than enough to qualify as its own mid-sized city.
And as this quarter’s report makes clear, it’s not just about residential either. Continuing growth in all key sectors of the Downtown market further supports this perspective:
- Trendsetting retailers from around the country are flocking to DTLA – New York burger favorite Shake Shack, Chicago’s RSVP Gallery, and Bodega, a Boston-based fashion retailer.
- High-end hospitality brands like the NoMad and Journal Hotels are entering the market, drawn by impressive occupancy and RevPar rates.
- The office market continues to diversify, attracting dynamic companies in growth industries like tech, media and fashion, such as H&M Innovation Labs and TubeScience.
- DTLA’s dominant position in arts and culture gets stronger with the Lucas Museum of Narrative Art breaking ground and the Colburn School announcing its expansion.
So if you’re wondering if the Downtown renaissance has plateaued, if the DTLA trend has peaked, if the area’s revitalization can sustain this level of growth, you’re asking the wrong question. The right question is: “how much more housing, retail, hospitality and office space do we need to build to fulfill our destiny as a world-class city center?” The answer to that question is: “a lot.” That’s what we’ll continue to do, and we hope you will join us and #MakeItYours.