(Bloomberg)—Downtown Los Angeles office towers are eerily vacant. Graffiti-splattered boards cover shuttered restaurants. Darkened shops with “For Lease” postings outnumber “Open” signs on some streets.
Yet most of the apartments that emptied in 2020 are filled again. The demand is enabling landlords to push rents to record highs and dial back the incentives, such as free parking and gym memberships, that were once essential to lure tenants.
Before Covid-19 hit, the gritty district -- infamous for its Skid Row homeless encampments and far from the city’s glamorous mansions -- was getting remade into a round-the-clock community of new, relatively affordable high-rises within walking distance of museums, supermarkets and sports venues. The influx of new residents, along with a shortage of housing elsewhere in the region, is giving that vision a jump-start.
“Downtown is coming back,” said Ryan Patap, a market analyst for CoStar Group Inc. “It’s not a complete ghost town. There’s hope.”
Like other U.S. downtowns, LA’s central business district emptied out early in the pandemic, raising concerns that America’s urban renaissance was ending. Rents plunged from New York to Seattle, falling 11% in downtown Los Angeles. As remote work prevails, some pricey cities, such as San Francisco, still haven’t recovered, but many other areas are bouncing back, despite renewed fears of emerging Covid variants.
Over the past year, rents in downtown LA climbed 16% to a record-high average of $2,701 after discounts and concessions, according to CoStar. The vacancy rate fell to 6.2% from 14% in mid-2020.
“Prices are back up,” said David Ortiz, a leasing agent at 8th+Hope, a 290-unit tower where monthly one-bedroom rents start at $2,788. “I had an amazing December.”
Rents are still cheaper on average than for comparable apartments in nearby coastal communities such as Santa Monica, or suburbs like Culver City, Glendale and Burbank, where the boom in entertainment-industry jobs fuels higher prices for slim supplies of housing.
The source of demand downtown “is neither office nor hospitality jobs,” said Stuart Gabriel, a professor of real estate at the University of California, Los Angeles. “It’s a reflection of the overall scarcity of rental housing.”
Downtown LA got 16,000 new units in the past decade, nearly doubling its housing stock as developers found a rare area with no density restrictions and little neighborhood opposition, according to CoStar.
The recent drop in vacancies was due partly to a temporary slowdown in new inventory, which will pick up when 4,700 apartments under construction become available, according to CoStar. Openings slated for the first half of 2022 include the 1,150-unit Ferrante by local developer G.H. Palmer Associates, and 430 units in the $1 billion Frank Gehry-designed Grand LA project by Related Cos., the company behind New York’s Hudson Yards.
That will affect short-term supply but not demand. The Southern California Association of Governments forecasts the population of downtown will more than double to 200,000 by 2040 from roughly 83,000 today.
New downtown residents range from students at the University of Southern California to empty-nesters seeking pedestrian-friendly comforts.
Take Teresa Batyko, who sold her 4,500 square-foot (420 square-meter) home of 30 years to move into a one-bedroom apartment, where her husband, a retired attorney who’s disabled from Parkinson’s Disease, can ride an elevator to an in-house gym.
“You can walk everywhere,” Batyko, a teacher’s aide, said as she took her dog Meta for a stroll on a bustling Spring Street sidewalk. “There’s a Whole Foods. There’s a beautiful new Apple store around the corner.”
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