Images courtesy of Urbanize.city
The Promenade 2035 commercial property development project in Woodland Hills – A $1b live/work/play mini-city on the western edge of the San Fernando Valley in Los Angeles.
In the wake of global confusion and the subsequent impact of Covid 19 over the past few years, commercial real estate (CRE) development in Los Angeles—and California, in general—is beginning to look up and look ahead.
The industry, like so many others, was hit hard in the early days of the pandemic. However, the 2021 Q4 in Southern California has shown record commercial property sales, in keeping with market trends.
The Promise of 2022
Commercial Real Estate (CRE) investment is beginning to surge, despite ongoing uncertainties and challenges due to the lingering effects of the pandemic. Like many locations worldwide, California is already witnessing huge CRE transactions during early Q1 2022.
Richard Barkham, the chief global economist and head of Americas research for one of the global leaders in commercial real estate, the CBRE Group Inc., predicted that America’s economy will continue to expand through 2023 and beyond, with above-trend growth near 4.7% this year alone. This may bode well for commercial real estate expansion, and CRE developments like Promenade 2035 in the Woodland Hills area of Los Angeles which is now resuming after a Covid-19 hiatus.
However, there is still a need for caution as the economy in the U.S. and California are now suffering from hyperinflation coupled with labor shortages and continuing supply chain interruptions. What seems like a positive growth trend during normal years is directly measured against the fallout from the pandemic. In other words, we may be seeing rapid growth levels, but when you weigh them against other economic factors, we’re clearly not out of the woods yet. Adding to these challenges, we’ve got global stresses from the war in Ukraine and the resulting increase in oil prices.
Tenant Retention and Trends
On the flip side, while commercial sales may be on the upswing, property owners face a paradigm shift in how they retain tenants, form leasing structures, and plan/develop construction projects that adapt to the new normal. Commercial property management companies like Belwood Properties are helping to relieve the mounting pressure felt by CRE owners when dealing with clients and tenants.
Here are a few notable issues affecting commercial property rentals in 2022:
- A shift in the structuring of commercial leases as more commercial tenants adjust their work protocols, and a re-evaluation of Force Majeure definitions (def: unforeseeable circumstances that prevent someone from fulfilling a contract) built into lease agreements due to our experiences with COVID-19, namely supply chain shortfalls and delays.
- Landlords and commercial tenants will need to work together to create leasing solutions that adapt to changing business models, namely incorporating flexibility, shorter terms, and amenities to attract employees back to the primary workplace. Both parties will need to find solutions to alter existing spaces while adopting new security measures and safety protocols that comply with current and post-COVID regulations.
- Newly implemented and enhanced carbon emission laws are impacting commercial development, and fines for ignoring these laws are steep. Retrofitting buildings to meet new ventilation system standards can be cost-prohibitive, and legislation is not budging on emission laws despite CRE lobbying. CRE construction currently accounts for almost forty percent of global carbon emissions.
- Vaccination mandates are in a state of flux as COVID restrictions begin to lift. However, with some companies still requiring employees to be vaccinated, this can impact the property manager’s ability to hire subcontractors for maintenance and cleaning. Owners and property managers do not have the contractual right to demand that subcontracted employees be vaccinated before entering a commercial property. However, tenants may not legally demand that outside contractors hired by property managers be vaccinated and can waive their rights to services.
- On a more positive note, there is a higher demand for certain developments such as multi-family communities and industrial and life sciences centers – both having experienced strong growth despite the pandemic. The challenge is whether the market will become overvalued and too hot, which might negatively influence other sectors.
Promenade 2035 Woodland Hills
A perfect example of exploding CRE community development is in Woodland Hills, just north of Los Angeles. Promenade 2035 plans indicate a mini-city, complete with a sports arena, hotels, a hi-rise office tower, supermarket, public square, and over 1400 apartments. This massive project has a $1b plus price tag and is located on the site of the former Warner Center shopping mall, a thirty-four acre property in the western San Fernando Valley.
The property owners, Unibail-Rodamco-Westfield, promise to reserve a five percent portion of available housing to be more affordable for working families earning approximately $77,300 per year or less based on median earnings for the area. Conversely, the developers plan to set aside five percent for those earning between 120% – 150% over the median income for the area.
A prime example of green planning, Promenade 2035 is a vision of the future, promising culture, entertainment, and employment while doing its part to reduce the carbon footprint by attaining LEED Silver status and specialized irrigation systems utilizing recycled rainwater.
After Covid-19 setbacks, construction is set to resume; however, there may still be delays due to supply shortages. It is estimated that there will be over ten thousand full and part-time jobs created during construction. Upon completion, Promenade 2035 estimates the creation of over nine thousand jobs. This new blueprint of community living is just one of the new visionary developments currently on the table in the Los Angeles area.
District NoHo is being designed as an urban village in North Hollywood, using the fifteen-acre hub for a new transit-oriented community that will include affordable housing, market-rate homes, offices, and retail stores.
The Property Management Connection
As with all commercial, retail, and housing developments, professional management must ensure that all regulations are met, and protocols are followed. A property manager must excel in tenant relations, property expenses, collections, and reconciliations in addition to myriad necessary functions.
There will be a significant demand for property managers to assist with the day-to-day operations of large projects like Promenade 2035, and Belwood Properties understands the ins and outs of such an enormous responsibility.