Residential and commercial real estate sales prices and rental rates continue to increase in Long Beach, according to industry experts. Though prices continue to climb across all markets, rate of appreciation has begun to slow, Edward Coulson, a professor of economics and the director of research at the University of California, Irvine Center for Real Estate, noted.
Home prices continue to climb despite a slowdown in sales. “The bottom line is we seem to be seeing a flattening out of [home] prices in a lot of areas in the Southland,” Coulson said. “You could attribute that to a lot of things, [including] the affordability issue and the last tax bills we had. But we can be encouraged going forward that it doesn’t look like there’s going to be any more [interest] rate hikes.”
Rising prices mean a shrinking buyer pool, which equates to a longer time on market for sellers, according to University of Southern California’s John Loper, an associate professor of real estate. As wages increase, Loper said the buyer pool should grow, as well. He added that many families are moving from coastal cities to the less expensive Inland Empire to buy their first homes.
The multi-family market has been strong, Loper said, citing rising single-family home prices as the key driving factor. “A lot of people are staying in the multi-family realm longer until they can afford to buy their first house,” he explained. Increasing rents and a lack of supply has caused fewer people to move to coastal Southern California areas than in previous years, Loper noted.
In the midst of a statewide housing crisis, Coulson explained that high-density residential developments, such as apartments, condominiums and townhomes, would ease affordability issues by maximizing the introduction of new product. However, he cited NIMBYism (Not In My Backyard) as a constant hurdle. To combat the housing crisis, Gov. Gavin Newsom has pushed for increased housing development.
For years, there was speculation that Millennials would be lifelong renters, Loper said. However, he noted that Millennials are simply starting families and buying homes later in life than previous generations. For Millennials, Coulson said condominiums are a popular option due to a lower price point compared to detached homes.
Despite increased sales prices and rental rates, Coulson noted that the Southern California market will always be a desirable location to live. “We use this term ‘elastic demand’ – the desirability of Southern California as a place to live is going to keep drawing people in,” he said. “There’s global demand for California residential real estate.”
All Long Beach commercial real estate markets have experienced reduced vacancy and increased asking rents. Office market trends are extremely localized, Loper explained, noting strong demand for space in areas such as West L.A., Santa Monica and parts of Orange County. Low unemployment continues to drive the demand for office, as companies continue to hire, he said, adding that demand would be stronger if not for the fact that companies are using less space per employee.
“The type of office that people are demanding has changed. It’s much more outdoor spaces, open space – campus-style offices are becoming very popular,” Loper said.
Creative and flexible office space that allows for co-working and collaborative work is part of the new norm, Coulson explained. Amenities will continue to be important for office users, including leisure and entertainment space that might feature pool or ping-pong tables.
The retail real estate market is the most volatile at the moment, Loper said. Grocery stores have been one of the strongest users of retail space, he explained, noting that people still like to hand select items such as produce. Big-box retailers, on the other hand, have been “hurt dramatically” over the last 10 years by e-commerce, he observed. “The mall business is a tale of two cities,” he said. “You have malls that have been very successful and you have malls that are dying. The ones that have a very strong mix of anchor tenants and a good mix of other things like theaters and restaurants [have] done well.”
A particularly bright spot for retail is the growing demand for the urban live-work-play lifestyle, Loper explained. Entertainment, restaurants and small retail stores are benefiting from walkable communities, such as Downtown Long Beach, he said. Entrepreneurs have an “astonishing” ability to envision new and creative ways to utilize space to create an experience, Coulson said, noting the paint and sip industry, which has grown rapidly over the last decade.
The industrial market remains hot, with low vacancy and record-high lease rates, according to Coulson. Local experts note that the South Bay area, with high industrial space demand due to San Pedro Bay port traffic and a lack of developable land, remains strained. However, in Southern California as a whole, new industrial developments are beginning to emerge to meet demand, Coulson added.
“There was something like seven million square feet built in the past year,” Coulson said. “The absorption has been close to zero, which means that supply is finally catching up to demand. Vacancy is up to about 1.5%, which compared to the office sector is just microscopic. It’s been an astonishing sector.”
Loper said in the last several years, demand for warehouse space near urban areas, rather than outskirt areas, has increased greatly to allow for last-mile distribution by companies such as Amazon. Another trend is for companies to include office space in their industrial facility, allowing them to house all facets of their company under one roof, Loper added.
One blemish on the industrial market forecast is potential impacts of a trade war with China, Coulson said. Both Coulson and Loper noted the uncertainty that surrounds all real estate markets and the economy as a whole during presidential election years. “There’s a massive amount of uncertainty with where the economy is going to go. And there have been certain signs of a recession,” Coulson said. “But the political environment is always fraught with uncertainty, so we can’t really make solid predictions quite yet.”