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Los Angeles Office Market Q&A

Monday, October 31, 2016

HFF Director Andrew HarperThe nature of offices are rapidly evolving due to changing technology, demand and demographics, and NAIOP's O.CON '16: The Office Conference provides the opportunity to learn what is driving the future of the office. The conference, which runs from Tuesday, November 1, through Wednesday, November 2, provides a global perspective on the outlook for capital markets, looks at the various challenges and rewards of reinventing or re-purposing office space and explores the technology revolutionizing office real estate.

For more than 16 years, HFF Director Andrew Harper has been involved in commercial real estate in and around Los Angeles, where this year's O.CON conference is held. He specializes in office and land investment sales throughout Greater Los Angeles and the West Coast. Mr. Harper has closed in excess of $5 billion in transactions, encompassing more than 25 million square feet throughout Southern California.

Los Angeles Market Q&A with HFF Director Andrew Harper

  • What is unique about the Los Angeles office market?  Diversity, whether it is location/submarket, product type (high-rise versus low-rise creative) or the tenant demand drivers with tech, entertainment, venture capital, entrepreneurs and government/education, makes the Los Angeles market unique.

  • Why should investors pay attention to Los Angeles?  There are several reasons why investors should pay attention to LA: We are a major gateway market with significant barriers to entry, tremendous economic diversity and a strong entrepreneurial demographic base. Additionally, Los Angeles consistently ranks as a top destination for both domestic and international investment, and the area is a relative bargain when compared to New York and San Francisco, which is supported by the fact that we are seeing a trend of New York investors focusing on Los Angeles.

  • What significant thing or things have happened in the LA office market this year thus far?  Continued strength of our fundamentals and a lack of new supply are both significant things occurring in the Los Angeles office market. We have seen exceptional growth in our core Westside markets and continued recovery in the secondary markets. Several high-profile core deals are trading on the Westside, which is unusual for a market that rarely sees product trade. On the development side, there is less than 2 million square feet under development in a market that is nearly 190 million square feet. This all bodes well for the continued strength of our market as oversupply had set back the recovery timeline during previous cycles.

  • What trends in commercial real estate do you predict will be big in 2017 for the Los Angeles office market?  We are starting to see capital flow into suburban markets, although it is early and spotty. There is a tremendous amount of capital that has been raised by closed-end funds, and these investors are having difficulty deploying capital in urban markets. What we are beginning to see in the suburbs is that investors are staying disciplined in their pricing expectations, and are focused on the best in class assets. As investors seek higher yields and product, we believe that more capital will begin to flow into these markets and there will be greater velocity in 2017.

  • What exciting things are happening in the market right now?  I would summarize with one word: Google! We are seeing a tremendous amount of tenant growth and momentum coming out of Playa Vista, as Google has leased the former Hercules Hangar and will employee several thousand employees at this location. There is a strong need for tenants to be close to the epicenter of Google, and the surrounding submarkets of Culver City and El Segundo are the main beneficiaries of this clustering as there is limited space in Playa. We expect to see continued growth in these markets, as Google will not be in full occupancy of their project until 2018.

About NAIOP

NAIOP, the Commercial Real Estate Development Association, is the leading organization for developers, owners and related professionals in office, industrial, retail and mixed-use real estate. NAIOP comprises 18,000 members in North America. NAIOP advances responsible commercial real estate development and advocates for effective public policy. For more information, visit naiop.org.





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