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2009 Los Angeles Commercial Property Outlook!
The position for Los Angeles’ property retail market remains strong, though slowing economic and suspicious future for housing conditions will reduce demand for retail space in the near term. Due to land supply limitation, there will be more redevelopments and rehabbing of older shopping centers. Conversion to open-air shopping centers and additions, such as, novelties and entertainment complexes to attract consumers and generate more foot traffic to the centers would be a trend among developers. Some local employers continue to trim their payroll in 2009 and the uncertainty has created a mind-freeze and confusion for most buyers of commercial retail properties. Forecast for the vacancies, is to edge higher and lease concessions will be a motivating factor to keep or entice tenants to keep the maximize cash flow. Also, there will be a focus on tenant quality and tenant-mix to boost better foot traffic and increase the sales per square foot. Property sales velocity will be moderate as continued economic pressure will carry into the end of 2009 as banks intend to prolong their thigh lending policies. Buyers will demand a higher rate of return and Single-Tenant and prime location shopping center properties will be in the 6-6.5% capitalization range, and lower quality properties have to offer higher initial yields, of between 50 to 100 basis (7-8% cap rate) points or even higher to attract qualified buyers. With that said the key to successful commercial property investing may still lie in locating those assets in certain markets which will rise above the completion by having desirable investment elements, such as, excellent visibility, higher car and foot traffic location, above average population density. These characteristics will lend themselves to better local trends which will render to key fundamental analysis of the property for the banks for financing and attracting more eligible buyers. Economy - The local economic downturn has pushed the cap rates higher and with the lack of investor’s confidence, and flight to safety due to uncertainties, investors’ confidence needs to be regained so Los Angeles real estate could be considered by smart money, but very selectively. As forecast for employment remains weak for 2009, new construction start up will be moderate, vacancy rates will slightly increase and asking rents will remain in check due to easing tenant demand. Property sales trends and velocity will linger as the sellers and buyers expectations are still not matching and sellers’ asking prices are not realistic yet. Single-Tenant properties due to their higher quality have done better (6% cap) than their counterpart Muti-Tenant (6.5-7%) properties and will be more attractive for year 2009. Downtown Los Angeles, developers has stopped some of the new development projects or has canceled completely their plans for construction for the time being due to lack of available financing and decrease in demand for retail, residential and office spaces. LA Live project completion and renewed LA Convention Center business will be bright spots in the near future. West Los Angeles market due to barrier to entry, high cost of new development and lack of available inventory for sale has resulted in a more stable market, but rents stayed stagnated and median property sale price have dipped slightly. San Fernando Valley market stayed more active in comparison, but the slower rate of new developments and absorption has effected the prices. Long Beach and South Bay market expects to have slowing retail property sales with slow expected rent growth. In brief, lenders to remain cautious in 2009, with lower Loan-To-Values (LTV) and demanding 1.25 or higher Debt Coverage Ratios (DCR). But, Los Angeles market area is resilient due to its migration patterns; lack of infill land supply, great demographics, high population density, its climate and sizable diverse economy will remains on the watch list of major RIETs. This extraordinary economic weakness has presented buyers with great opportunities and with the increase in Commercial REOs in 2009; Buyers should be ready to act for bargains which will be available in late 2009 and throughout 2010. Article Directory: http://www.articledashboard.com |
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