Santa Monica Commercial Real Estate Report For 2013
Santa Monica is a beachfront city in western Los Angeles County, California, United States. It is bordered on three sides by the city of Los Angeles — Pacific Palisades on the northwest, Brentwood on the north, West Los Angeles on the northeast, Mar Vista on the east, and Venice on the southeast. Santa Monica is home to executives and Hollywood celebrities amongst others, and it is a mixture of affluent, single-family neighborhoods, renters, surfers, young professionals, and students.
Partly because of its agreeable climate, Santa Monica had become a famed resort town by the early 20th century. The city has experienced a boom since the late 1980s through the revitalization of its downtown core with significant job growth and increased tourism.
Santa Monica is home to the headquarters of many notable businesses, including Universal Music Group, Lionsgate Films, the RAND Corporation, Beachbody, Macerich, COR Capital LLC, Entravision Communications, Demand Media, Anworth Mortgage, search engine company Business.com, and film / television production company and record label The Playtone Company, headed by actor Tom Hanks and producer Gary Goetzman. Major companies with branch offices in Santa Monica include: Microsoft, Yahoo!, MTV and Edmunds.com.
The Design Center California for Volkswagen, formerly located in Simi Valley, moved to the former site of the Museum Of Flying at the Santa Monica Airport in 2006. Volkswagen’s only styling studio in North America has been responsible for many notable automotive designs, including The New Beetle and The Audi Road Jet concept seen at the Detroit Car Show.
The offices for the Comedy Central show South Park are located in Santa Monica. Supermarine, now Atlantic Aviation, is at the Santa Monica Airport. National Public Radio member station KCRW is located at the Santa Monica College campus.
With over 310 days of sunshine each year Santa Monica is a great place to live and an equally good place to invest. In addition to being home to a number of Hollywood celebrities and executives the city is populated by many affluent professionals employed technology, media or healthcare sectors.
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With average household incomes comfortably above those for the state, the city continues to be an attractive place for top end retailers to do business. Office space in the city is in also high demand thanks to a high profile media company’s such as Lionsgate.
If you have been thinking about investing in Santa Monica now would be a great time. Prices for industrial and office properties are once again rising after declines following the GFC in 2007. While prices are definitely on a stronger footing there is still a lot of opportunity to participate as many properties are still below the heights set in the last real estate boom.
As you will see below Santa Monica is well placed to benefit from a stronger state wide and national economy thanks to its focus on tourism and the entertainment industries.
Below we will look at some of the details of the Santa Monica growth story in more detail and the factors that are underpinning rising prices.
Key Highlights Of Santa Monica Commercial Real Estate:
- Unemployment falling to under 8%, lower than state average
- Average multi family home price up 1.3% to $385,572
- Prices for office space holding steady for past 3 months at $615.37 a sq ft
- 3.2% rise in average price for industrial properties
- Population rapidly growing at a rate of 6.7% for past decade
Unemployment dropped in April of this year to 7.6% from 8.2% the month before. This follows a downwards trend across the county as the economy recovers from the effects of the financial crisis. This is a good news for retailers and landlords in the city of Santa Monica. As consumers feel more confident in their job prospects and the strength of the economy they increase their spending.
This means fewer retailers going out of business and more multi store retailers moving into the Santa Monica. For retail landlords who have been having to offer inducements to attract new tenants into their property this is welcome news.
Helping this overall trend of improved consumer confidence and spending is the rise in household prices. Multi family house prices in Santa Monica city have risen to $385,572 in July of 2013. This is an increase of 1.3% for the month. This is off a low of sub $280,000 prices that we saw in 2011. This trend is reflected across the county with the average multi house price rising 4% in July to $170,719.
The wealth effect of rising prices on spending can be significant. As consumers feel wealthier on the back of the household wealth they are more likely to spend in the shops. Compounded with the healthy employment figures and we should see an improvement for retail operations.
The rise in multi family house prices is good news for apartment developers and investors. With a growing population Santa Monica continues to attract young, professional workers to the city. While prices for apartments and condos are rising rapidly there is still further potential for growth.
Rising interest rates do pose a potential risk. However,there has been a trend across the state for investors to pay in cash for properties due to the difficulty obtaining financing. These investors are less sensitive to interest rates fluctuations and so the impacted may be muted.
The price for office properties has been holding steady in the city since the beginning of the year with the average price per square foot at $615.38 sq ft. However,across the county we see more positive action with the average price per square foot rising in July to $265.34. This is part of the broader trend we are seeing across Los Angeles with the prices of office rising. In a particular class “A” office space is in high demand.
Following 2007 many corporate tenants made the move from class “B” to class “A”office space and were able to act from a strong negotiating position. However,in 2013 the days of bargain price class” A” office space are behind us. Prices for office space are predicted to rise as the overall economy picks up.
With many entertainment businesses located in Santa Monica we can expect local industry to do well on the back of the improving national economy. As consumers incomes improve discretionary spending on entertainment increases which bodes well for the Santa Monica economy.
Another sector that contributes to the strength of the market for office space in Santa Monica is the video game industry. The past decade has seen a number of video game companies establish their headquarters in Santa Monica. The lifestyle and sunny weather that Santa Monica offers have been a major draw card for attracting talented technology savvy workers. These workers in return have made it attractive for developers involved restaurants and entertainment centres which service them.
Industrial property also shows signs of increasing strength. The average price per sq ft for industrial property in the county was $136.12. This was a 3.2% increase from three months prior. Year on year industrial commercial real estate prices is up 5.5%.
Industrial property in the state a has a whole has done well thanks to the improvement in the US economy and a stabilizing Europe which seems to have avoided the worst of the sovereign debt crisis. The improving international economic picture is particular good for manufacturing and logistics businesses in the state because of the heavy emphasis on exporting.
One of the major issues facing the industrial sector is a lack of inventory. Following the GFC construction in the sector significantly slowed down and in many cases stopped altogether. During the recession that followed the GFC this did not pose a significant problem due to lower consumer demand.
However as the economy has started to pick up once again the lack of available inventory is putting pressure on prices for industrial property which can be seen in the rise above. While a number of new projects are under way, predictions are that these will not be able to meet the demand for suitable industrial properties.
Adding to the pressure on industrial property prices is the need by many businesses for fulfillment centers. These have become increasingly important due to eCommerce. Much of this space is in addition to the businesses existing warehousing needs. In many cases these means a doubling of industrial space required. Overall these factors are likely to push industrial property prices in the county even higher until the demand and supply picture is able to regain equilibrium.
Ocean Avenue Becoming Revitalized
Down town recently saw the development of a new residential and retail complex as well as a six acre car park across Ocean Avenue. The two new developments are part of a move by Santa Monica city officials to revitalize the city centre around city hall. In the past this area has been relatively dead in comparison to the commercial district around Santa Monica Pier and the tourism and residential areas to the south.
At the heart of the new development is the $350 million apartment complex which is being built over restaurants and stores on Ocean Avenue. The apartments are being targeted to affluent buyers with the interiors of the apartments being done by Clodagh of New York. The developer behind the complex is Related Cos. The New York based developer is responsible for the Time Warner centre in Manhattan.
Eco Friendly Buildings
California has a reputation for being the home of renewable energy and eco friendly government policies. For its part Santa Monica has made a concerted effort towards sustainable buildings. All of the public buildings in the city use renewable energy.
Over the last fifteen years this has allowed the city to reduce greenhouse gases by almost 10%. Santa Monica has its own green building program which aims to reduce the number of commercial buildings with air quality problems which impacts worker health.
Commercial Real Estate Santa Monica Overview
The lifestyle and healthy economy have attracted many people to Santa Monica over the past decade. According to census figures between 2000 and 2010 the population of Santa Monica increased by 6.7% to just under 90,000 residents. With an average household income of over $71,000 a year and an employment rate that is lower than almost every other part of the state, the city has an affluent and well educated population. Crime rates in the city are also lower than nationwide averages and are mostly related to property crime rather than violent crime.
In terms of the local economy it is home to a number of well known business company’s including Lionsgate Film, Universal Movie Group, RAND corporation, Beachbody and DemandMedia. Large technology giants like Microsoft and Yahoo also have branch offices in the city.
Another important part of the local economy is the prevalence of game companies in the city. Riot Games, Activision Blizzard and SCE studios are all located in Santa Monica. The concentration of entertainment, technology and game companies is important because they attract a youthful, educated and well paid work force to the city. This is also one of the reasons that high end retailers are always eager to find space in the city.
After the city of Santa Monica the largest employer in the state is Santa Monica College which employees over 2000 people. The presence of Santa Monica college also means that there is a large number of students in the area which is great for landlords and businesses which service this population. Other large employers in the area are Saint Johns Health Center and Santa Monica UCLA medical center. Again the concentration of businesses in the medical industry tends to attract better educated workers.
Santa Monica is home to three main shopping districts. The Down town district is at the center of the city, Montana avenue can be found to the north side, and at the south end there is the main street.
Montana avenue is best known for it upper end shops including luxury boutiques and restaurants. The area also features a number of small offices. Main street as a wider mixture of clothing retailers and other specialty shops. Down town features the third street promenade which is a pedestrian only shopping district. At Santa Monica place is a mall which was designed by the architect Frank Gehry.
If you are looking to invest in commercial real estate then you should take a close look at the opportunities that exist in Santa Barbara. With a resurgent economy both in California and nationwide expectations are that local technology and entertainment companies stand to benefit. This should help to support the already upward trajectory for prices for office space in the city.
Another big trend in Santa Monica is the increase in house prides. As the wealth effect of higher house prices is combined with an improved economy we can expect to see further increases in consumer spending. Santa Monica is also heavily dependent on the tourism industry. With more people travelling and spending money retail and hotel operations should perform well. A great demonstration in the confidence is Santa Monica is the large scale development along Ocean Avenue. As the area around city hall is further developed we can expect to see more opportunities for investors.
Industrial space in the county is another hot spot for commercial property investors. Over the past five years there has been a lack of development in the sector and now demand is projected to significant outpace supply. This is putting upwards pressure on industrial property prices. This trend is expected to continue for the foreseeable future provided that the international economic picture remains stable.
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Overall Santa Monica is a great place to invest if you are looking for a stable market with great growth opportunities. The relatively high percentage of workers involved in the local technology and media industries means that there are plenty of opportunities for investors involved in retail or entertainment developments. Office space in the city is also increasingly attracting premium prices,and rents in the city are once again on a rise. With property prices recovering across California, now is a great time to take part in the resurgent growth of Santa Monica.