January 23, 2019
Tim Lee, Principal at Olive Hill Group, provides an industry outlook on the biggest trends shaping the SoCal market. Check out his responses to Connect Media’s questions about investment strategies in a shifting environment, current events shaping approaches, and growth opportunities ahead in our latest 3 CRE Q&A.
Q: In light of the recent activity throughout Los Angeles’ CBD’s, how are investors and commercial property owners changing their investment strategies?
A: Although many investors and owners have shifted their focus to LA’s burgeoning submarkets where cap rates are still attractive—including areas such as Culver City, Hawthorne, and Hollywood—many Chinese investors are selling their assets in this market. While Chinese investors have been a huge factor in the run-up of pricing over the last two years, this activity is dropping off. It was recently announced that Chinese owners are selling the Chrysler building.
On a positive note, this shift may encourage some owners to consider putting their assets on the market now, in order to capitalize on them before the market cools down completely.
Q: How are current events influencing investment strategies?
A: Tariffs could have a dampening effect on investment strategies, as they cause an increase in stock-market slowdown and a decrease in consumer confidence and new-business start-ups and expansions. Typically, CRE is impacted within about 12 months of the start of a recession, as investors begin to adjust.
Q: Even though we may be nearing the end of the cycle, do you think growth in the area will remain strong in 2019?
A: There is certainly some concern as to whether or not we may see a softening in growth over the next few years, and whether rents in certain regions may plateau. However, this is not the case in many of the emerging office markets where tech growth has continued to drive demand, such as areas throughout West LA.
In core urban areas of the West, multifamily is overbuilt due to so many investors going into these areas. With new builds targeting high-paid millennials, rental pricing adjustments and concessions are now needed in overbuilt areas, which will impact ROI.
Office is also in danger of being overbuilt in areas like Hollywood, El Segundo and DTLA, and vacancies are slowly ticking up even in stronger markets where there have been some recent historic lows. This is something investors are monitoring closely as we move into 2019.
For comments, questions or concerns, please contact Dennis Kaiser