Even in the face of Covid-19, construction is booming in Los Angeles.
During the third quarter, there were 39.5 million square feet of industrial, office and multifamily properties in development, along with another 127 million square feet of proposed projects, according to research from CBRE Group Inc.
That level of construction activity hasn’t been experienced in Los Angeles County since the late 1980s.
“We’re seeing that there is a robust construction pipeline,” said Eric Willett, regional director of research and thought leadership at CBRE. “A lot of the construction pipeline started over the last couple of years. The scale is exciting to developers.”
Willett added that the amount of construction indicates long-term growth planned for the L.A. market, particularly multifamily and high-rise product.
The arrival of the pandemic hasn’t had much of an impact on existing projects for construction company Snyder Langston, according to President Jason Rich, who added, “100% of what was under construction (pre-Covid) has remained under construction for us.”
However, Snyder Langston has seen a pause on new construction over the last few months, especially as developers look to secure financing.
“All (existing) construction has been going still, but the new starts haven’t,” he said. “There’s a gap in the pipeline.”
Most of the product being developed is multifamily housing. Roughly 135 million square feet of apartment projects are either planned or under construction in L.A. County, CBRE found.
“The interest in multifamily really is because of the supply-demand fundamentals here in L.A.,” Willett said. “The region has long faced a housing shortage, and developers are responding to that. We are seeing a huge surge in multifamily construction.”
Parkview Financial provides loans. Founder and Chief Executive Paul Rahimian said the company was experiencing “a flurry of activity. We’re seeing more of a demand now than we did pre-Covid.”
Part of that, he said, could be because a lot of other groups are not doing construction loans now. Right now, 80% of all financing the company is giving is for multifamily properties.
“They aren’t worried about Covid. If they break ground today, they will come (to market) in 24 months,” he said, adding that many developers think the pandemic will be over or look different then.
Looking up
Developers are also building up. Between 2000 and 2009, only 21% of new buildings were more than five stories tall. Currently, 57% of buildings planned or under construction are five stories or more, CBRE found.
“L.A. is pretty much built out,” Willett said. “The economics for developments have shifted, making it more important for developers and builders to look up rather than out.”
Rich added that he is seeing a lot of high-rise developments, especially in areas like downtown.
Rahimian, on the other hand, said activity is not as strong for true high-rise developments because of the steep construction costs those projects carry. But he is seeing “things a little bit higher in terms of height.”
Rahimian added that he used to be contacted about a lot of two- to four-story properties. Now he’s fielding calls for projects in the five- to eight-story range.
Part of that, he said, is the increase in land prices and the availability of Transit Oriented Communities benefits, which provide incentives and allowances for things such as increased density, taller projects and reduced numbers of parking spaces.
Watching the pipeline
Much of the construction in Los Angeles started before the Covid-19 pandemic.
“Generally, the new development, the large projects that we have kept going. They were already permitted and in the middle of construction. All the new development kept moving forward,” said Anu Rao, a vice president at Jones Lang LaSalle Inc.
That doesn’t mean the pandemic hasn’t had an effect on construction. Willett said Covid-19 has made getting permits and other parts of the preconstruction process take longer, which could slow things in the long run. And some developers may reconsider projects.
“The pipeline of planned projects may slow as developers consider whether to build ground-up construction on entitled projects,” Willett said.
Rich added that some developers are looking to get through the election and holidays, and may start projects in the new year.
Rao added that interior projects or tenant improvements have slowed drastically. Rich agreed but said that could change as some tenants will rethink or sublease space, leading to lots of tenant work next year.
He added that he expects construction to pick up by the end of next year.
“There’s so much pent-up demand,” he said. “It’s going to go from zero to 60.”
Top 5 General Construction Projects in L.A.
(Ranked by Construction Cost)
1. Lucas Museum of Narrative Art in Exposition Park
The museum will have four stories of exhibition space.
Cost: $1.2 billion
Estimated Completion Date: 2021
2. Century Plaza Development in Century City
The plaza is being redeveloped with two new 46-story towers with 363 condo units.
Cost: $1.1 billion
Estimated Completion Date: 2021
3. Jordan Downs Redevelopment in South L.A.
The mixed-use development, part of which has already been completed, will have 1,400 new residential units and retail space.
Cost: $1 billion
Estimated Completion Date: 2022
4. The Grand in Downtown
The project will have a 39-story apartment tower, a hotel and retail space.
Cost: $950 million
Estimated Completion Date: 2022
5. Oceanwide Plaza in Downtown
The project will have residential units, a hotel and retail space.
Cost: $814 million
Estimated Completion Date: 2021
Los Angeles Business Journal