Los Angeles Commercial Property Prices
West Los Angeles Commercial Property Prices
The Coronavirus pandemic has impacted West Los Angeles commercial property prices, but the most significant effects have not yet occurred. The overall economy has been shocked by the two-plus-month quarantine with some sectors faring much better than others. Everyone in every location and in every industry across the globe has felt the sting of Covid-19, but as they say about real estate – it’s location, location, location. Therefore, we analyzed the limited data available in our core area of expertise which is West Los Angeles. Unsurprisingly, we found that transaction volume was down tremendously. However, West Los Angeles commercial property prices did not decrease significantly for sales or for leases.
Commercial Lease Rates
Based on Costar Lease and Sales Comps, we compared the two-month period prior to the stay-at-home orders against the last two months. We concentrated on the Culver City submarket and surrounding areas and we estimate that the entire West LA commercial real estate market mirror these results. On the lease side, the number of deals fell 71% from 41 to only 12 for office, retail, industrial, and flex properties. The asking rental rate only decreased 3%, but the starting rental rate was reduced by 29%. We don’t have access to the individual leases so we do not know whether that starting rate reduction is a temporary teaser rate or a long term rental rate slash. Based on the residential leasing market, both SFR and multifamily, the teaser rate or “move-in special” are popular methods to fill vacancies during this crisis without having to take a hit years down the line with below-market rent. Therefore, we can assume that the commercial landlords have a similar thought process and aren’t ready to slash their asking rental rates just yet. They will offer short term incentives though, in order to close deals in this difficult environment.
Commercial Sales Prices
West Los Angeles commercial property sales prices were also not down significantly, essentially remaining flat. Sales volume, on-the-other-hand, decreased dramatically. Office property deals decreased 83%. Retail property deals dropped 62%. There was not enough data for industrial or flex properties, but we can assume a similar reduction in sales volume. Commercial property sellers appear to be holding firm on their asking prices. Buyers looking for a fire sale are not yet finding those opportunities. However, that might all change by summer or fall. Many economists are predicting a slow recovery from the recession that just started. If those predictions are true, then West Los Angeles commercial property prices will decrease across all property types.
West Los Angeles Commercial Property Price Forecast
The real estate market is generally referred to as a lagging indicator. Fluctuations in the overall economy do not immediately affect real estate prices. Real estate price changes are delayed, or lag, the ups and downs of other economic sectors. In addition to the lagging indicator phenomenon, the domestic economy is artificially propped up with a ton of liquidity right now. Trillions of dollars of government stimulus and laws restricting evictions and foreclosures have put the brakes on a imminent crash in the real estate market. However, those temporary actions will not last forever and by the middle of the summer the financial realties of many businesses will become apparent.
Perhaps a miracle vaccine will save us all. Maybe the federal government keeps pumping money into the economy and the people who need it the most will actually receive it. The odds don’t seem great for either of those pie-in-the-sky options. Interest rates should remain low and many of the fundamentals of the economy were positive before the Coronavirus crisis, but unemployment is at depression-level figures and the V or U-shaped recovery seems unlikely. West Los Angeles commercial property prices are expected to fall later this year and into 2021.
If you think that now is good time to list your property for sale or want a complimentary evaluation, then please contact Jon Varsano.