How the Pandemic Will Forever Change Southern California Real Estate

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As we move through March, we are approaching the frightening milestone of a year during which COVID-19 has been the dominant story affecting everything and everybody, including commercial real estate. At CBRE, we have spent most of the past year dealing with the pandemic’s immediate effects: shuttered offices, socially distant retail, intense demand for industrial space, and more.

Slowly, though, the longer-term trends have begun to emerge. If 2020 was the proverbial once-in-a-lifetime earthquake for Southern California, the next year promises to be one of aftershocks and, ultimately, the settling of the dust.

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Southern California has always been a region in motion that is constantly redefining itself, and this dynamism certainly extends to the area’s commercial real estate, where old trends are accelerating (e.g., the ascendance of industrial and e-commerce, and the intense interest in alternative asset classes), while other new trends are emerging (the turn inwards and away from international connections). Let’s dive into several of the most exciting trends below.

For over a century, media and entertainment has been a cornerstone of the Los Angeles economy, and the region is the undisputed hub of creative talent in the Western U.S., employing 1 million people in creative industries and occupations — double that of any metro area other than New York.

Even amidst the pandemic, an insatiable demand for creative content of all kinds is driving the area’s creative industries. According to Nielsen, overall media consumption is up 8 percent annually. While the effects of the pandemic are materially different from previous recessions, the intense demand for creative outputs suggests that creative industries are likely to be a primary driver of growth as the region’s economic expansion intensifies in 2021.

With respect to the workplace, the massive work-from-home experiment is leading occupiers across all sectors to reconsider the role that the office plays for their company. As companies gradually return to the office, they are going to bring a decidedly different perspective to the office as a site of collaboration.

A world of Zoom meetings and Slack chats has reinforced for many employers that the physical workplace is essential to teamwork, culture, retention, and attraction of talent and building critical social capital.

In Southern California, the pandemic’s aftermath and shifting demand from corporate occupiers will raise the value of spaces that more easily support a flexible workplace arrangement and company collaboration. Since the Great Recession, creative office space has been in especially high demand, and demand for this kind of workplace will likely increase in the coming years, as a broader set of sectors looks to alternative office styles to achieve their strategy.

Additionally, the COVID-19 pandemic has focused attention on the importance of health and wellness in public spaces. For decades, wellness has received increased importance in real estate decisions, and the coronavirus looks likely to accelerate this trend.

Regional WELL certifications, for example, a designation for properties that advance health and well-being, have climbed steadily since being introduced in 2014, with certifications accelerating over the past three years. Wellness is deeply embedded in Southern California culture and is a primary differentiator from other metro areas. With a pleasant climate year-round and unparalleled access to an extensive wellness infrastructure, the region is likely to benefit from increased attention to healthy activities and spaces.

Retail’s reinvention in Southern California predates COVID-19, but the pandemic has magnified the importance of adapting the region’s retail footprint to meet changing consumer demand. In the early half of 2021, the sector will continue to be buffeted by the state’s relatively stringent social distancing regulations.

By the second half of the year, however, the anticipated re-opening of regional public spaces should clear the fog around the future path of retail assets. CBRE anticipates that the path forward will be one in which retailers embrace hybrid spaces, and, for properties that are underperforming, a wave of conversions is likely to materialize.

Those retailers and retail landlords that have pivoted quickly to adapt to the accelerating evolution in the sector, including those incorporating drive-through features, per our latest report, have benefited, even during these challenging times.

All of these shifts underscore the region’s dynamism and the importance of an adaptive commercial real estate sector. At CBRE, the emerging trends are also the source of significant enthusiasm. We can see Southern California’s future, and we are excited to work collaboratively to create the evolving built environment in the coming years.

Eric Willett is the director for research and thought leadership for the Pacific Southwest region at CBRE.