How L.A. Keeps Coming Back: An 80-Year Overview of Real Estate Development

“Urban resilience is the capacity of individuals, communities, institutions, businesses and systems within a city to survive, adapt and grow, no matter what kinds of chronic stresses and acute shocks they experience.” Rockefeller Foundation, 100 Resilient Cities

In the spring of 2018, Los Angeles released its Resilience Strategy, which outlined the administration’s vision for the future of the city. Urban resilience is particularly important, as cities across the world find themselves facing increasingly complex challenges. And, cities like Los Angeles — that have a history of overcoming various crises only to reinvent themselves and attract new talent and investment — are at a clear advantage.

There are several ways to chart the ups and downs that Los Angeles has experienced. For this report, we chose to highlight the city’s history of resilience by reviewing more than eight decades of residential and commercial real estate development not only within the city itself, but also in the different neighborhoods that make up Los Angeles County. We examined how financial crises, the rise and fall of industries and other shake-ups shaped the area’s current real estate landscape. Our sources included office, industrial and retail space construction data from CommercialEdge, as well as U.S. Census Bureau numbers on housing development. Learn more in the methodology section at the end of this article.

The report charts the most active decades for residential and commercial real estate development across different cities and neighborhoods in Los Angeles County. It also analyzes shifting market preferences for urban or suburban locations for construction projects throughout the last 80 years. Click on the highlights below for more information about which areas have been the focus of robust residential and/or commercial real estate construction activity in the last 80 years.

• • • • Between 1940 and 1989, Los Angeles built roughly 2.5 million new housing units. Construction reached record highs in the 1950s — with 724,477-units built — and then to plateaued in the following decades.
      • In the late 1980s, Los Angeles reinvented itself as a highly attractive financial hub on the West Coast and increased its office inventory by a record 113 million square feet.
      • Los Angeles was the epicenter of aeronautics throughout the Cold War, adding a staggering 108 million square feet of new industrial space between 1970 and 1979, its most prolific decade for industrial construction.
      • The golden age of retail in the region was the two decades before the 2008 financial crisis. Between 1990 and 2010, the city’s retail inventory grew by 58 million square feet.

  Three Decades of Sustained Growth: More Than 2 Million Housing Units Built From 1950-1989

  The California housing boom following World War II was tied to the rise of the aeronautics industry, which turned vast areas of what was once agricultural land into airfields, hangars and other aircraft testing and manufacturing facilities. As such, the state attracted millions of people with well-paying jobs through the end of the Cold War. Consequently, the growing number of people moving to Los Angeles County fueled robust, decades-long residential development.

  According to U.S. Census data, a whopping 724,477 new housing units were built in Los Angeles County between 1950 and 1959 — nearly twice as many as the previous decade. Specifically, more than 24,000 housing units were completed in Long Beach in the 1950s — the most during that 10-year period — followed by significant housing stock increases in Torrance of roughly 21,000 units. The southeast and southwest of the county also witnessed robust housing development activity between 1950 and 1959, with Lakewood, Norwalk and Downey adding 14,000 to 15,000 units each.

  While residential development in Los Angeles County decreased between 1960 and 1989, the slowdown was not noticeable until the 1990s and 2000s, when numbers hovered around 200,000 units. For instance, of the 223,495 housing units built between 1990 and 1999, most were located in Santa Clarita (5,312 units). And, although that number also constituted a peak in terms of residential development in Santa Clarita during the surveyed period, it pales in comparison to the activity in Palmdale — the top city for housing construction in the 1980s, with more than 10,000 units built — or Long Beach and Cerritos — where most of the residential construction between 1970 and 1979 took place, when 10,000 and 8,600 units, respectively, were added to the L.A. market.

  Meanwhile, certain circumstances influenced housing construction in Southern California at the beginning of the 1990s. For example, the end of the Cold War brought with it cuts to the defense budget and fewer government-sponsored aeronautics programs. And, given the cost of building and maintaining the appropriate infrastructure for such an industry, companies responded by consolidating. A few years later, following the merger of the top three defense contractors, the number of aeronautics employers dropped sharply. And, while this industry is certainly not dead in California, there has been a shift away from government-commissioned work and toward projects like those developed by SpaceX and Virgin Galactic.

  In the decade before the financial crisis, a few areas in Los Angeles County — such as Lancaster, Palmdale and Santa Clarita — continued adding 5,000+ units. But, since 2010, housing development has been on a much more reduced scale.

  For instance, housing construction in Hollywood hasn’t exceeded 4,500 units per decade since the 1980s. In fact, fewer than 2,600 housing units in total were built after 2010. According to experts, compared to the previous 60 years, this considerable drop in overall housing development in Los Angeles can be attributed to several factors. First, a major hike in mortgage rates during the early years of the 1980s — a measure issued by the Federal Reserve to combat inflation — dried up cheap credit for housing operations and put a stop to the California housing boom that had been going on since the previous decade. Furthermore, restrictive zoning laws made it difficult to introduce high-density housing into single-family areas.

  And, crucially, urban sprawl has also fallen out of favor since the financial crisis of 2008. As both residents and businesses long to be part of a more close-knit community, Los Angeles must rethink its future growth in a way that relies less on urban sprawl and automobiles. But, developing infill land increases costs and slows construction versus building on vacant land. Plus, according to a study we conducted in 2018, the amount of vacant or undeveloped land in Los Angeles’ central business district was a modest 12.6 acres. That’s significantly less than sprawling sunbelt cities like Dallas (86 acres), Austin (71 acres), San Antonio (42 acres) or neighboring Las Vegas (75 acres).

  From West Coast Financial Center to Vibrant Office Hub: L.A. Adds 191 Million Square Feet of Office Space Since 1980s

  In the 1980s, Los Angeles seemed poised to become an important runner-up to New York’s supremacy as a financial center. At the time, it eclipsed San Francisco as the largest financial hub on the West Coast, drawing a host of Asian banks and investment firms — including Tokyo Bank, Mitsubishi Bank, Tokai Bank and Sanwa Bank — to Los Angeles. Citicorp and Chase Manhattan Corp. also established a presence in the city’s downtown — an area which added 6.8 million square feet of Los Angeles office space from 1980 to 1989 and another 7.3 million square feet in the 1990s.

  The 1980s were truly the best decade for office construction in Los Angeles, as the county built a staggering 112.6 million square feet of office space during this period— a 130% increase over the 1970s. Besides downtown Los Angeles, significant office construction also took place along the coastal area in El Segundo (5.8 million square feet), as well as Bunker Hill (5.5 million square feet), West Los Angeles (5 million square feet) and Westchester (3 million square feet).

  In its heyday as a financial center, Los Angeles hosted no less than 173 non-California banks, including 126 foreign banks. However, since the 1980s, Los Angeles lost many of its banks to mergers and relocations.

  For instance, in 1992, Security Pacific was acquired by Bank of America in what was, at the time, the largest bank acquisition in U.S. history. Then, in 1998, the California Federal Bank — originally located at 5670 Wilshire Blvd. — sold to First Nationwide Bank and subsequently moved its offices to San Francisco. Later, the great recession delivered yet another blow to Los Angeles’ image as a banking powerhouse, as major local lenders like Washington Mutual, Countrywide and IndyMac went under, swallowed by non-California giants like Bank of America and JPMorgan Chase. Today, Pasadena-based East West Bank is the highest-rated bank in Los Angeles, even as it occupies a modest 43^rd place in the Federal Reserve’s ranking of U.S. banks.

  In the meantime, Los Angeles County lost an estimated 10% of its total jobs between 1989 and 1993 as manufacturing for instruments, electronic components, missiles and space vehicles faced setbacks from the winding down of defense spending. But, the business, financial, health care and transportation sectors filled that gap in the job market.  Moreover, being home to one of the most highly educated workforces in the country contributed greatly to making Los Angeles a regional hub for tech startups.

  Although Los Angeles is infamously sprawling, it was only in the 10-year period between 2000 and 2010 that office construction in suburban areas outpaced both urban and central business district (CBD) locations. Roughly 13.6 million out of a total of 26 million square feet of office space built in the 2000s was located in the suburbs. The 1990s was also a strong decade for suburban office development. At that time, approximately 14 million out of 32.7 million square feet were built in these areas, compared with 10.6 million square feet of office space in urban locations and in 8.2 million square feet of office space in CBDs.

  Today, Los Angeles County’s inventory encompasses an estimated 301 million square feet of office space. Of that, roughly 162 million square feet of office space — which represents 54% of the region’s office inventory — is in urban locations. That equates to 67 million square feet more than the total of all suburban office space, which comes in at 95 million square feet.

  The downtown area also houses most of the Class A+ office properties — roughly 6 million square feet – with an additional 5.6 millions square feet of Class A+ office space in Century City and another 5 million square feet in Bunker Hill. The majority of Class A office space is also located in downtown Los Angeles — totaling 16.7 million square feet — followed by 7.2 million square feet of Class A office space in El Segundo. Notably, most of the Class B office space outside of the downtown area is in Koreatown, which has around 6.7 million square feet, and El Segundo with 6.1 million square feet.

  In Sprawling L.A., 66% of Industrial Properties Built in Last 80 Years Are Located in Urban Areas

  During World War II, Southern California became the center of aircraft manufacturing, with the aeronautics industry employing around 2 million people. As the space race and the Apollo program further diversified job opportunities within this sector, demand for industrial properties increased by the decade and remained relatively high even past its peak in the 1970s — when Los Angeles added 108 million square feet of industrial space to its inventory.

  By the 1980s, the Los Angeles industrial pipeline added roughly 84 million square feet, followed by a sharp decline between 1990-1999 as industrial construction halved. While development picked up somewhat in the 2000s — as 58 million square feet of industrial space hit the market — Los Angeles added just over 30 million square feet of new industrial space since 2010.

  An overwhelming share of the county’s industrial inventory — roughly 169 million square feet — is concentrated within the Gateway Cities region in the southeast. The largest share of the total industrial space built in the Gateway Cities was between 1970 and 1979, when 32.6 million square feet of new industrial space was added to the market. Then, in the 1990s, the area witnessed a decrease in the number of new industrial properties, with development totaling a more modest 14.5 million square feet. The next decade, construction increased by 28%, totaling 18.5 million square feet of new industrial space.

  Looking more closely at the spread of industrial properties within the Gateway Cities region, Santa Fe Springs has an estimated 37 million square feet of industrial space, followed by Vernon (36 million square feet) and Commerce (33.7 million square feet). And, because most of these buildings were constructed prior to 2000, many of the properties in the Gateway Cities industrial inventory are currently graded Class B.

  However, an important exception is Santa Fe Springs, which kept its pace after its most active decade of industrial development in the 1980s, when it delivered 8.1 million square feet of industrial space to the L.A. market. Then, between 1990 and 1999, Santa Fe Springs added another 5.7 million square feet of industrial space, followed by 7 million square feet in the 2000s.

  Other significant industrial clusters include the San Gabriel Valley (85.6 million square feet), San Fernando Valley (35 million square feet), Carson (34 million square feet of space) and Compton (30 million square feet).

  The Golden Age of Retail: Roughly 58 Million Square Feet Built in L.A. from 1990-2010

  Retail mirrors the evolution of housing construction activity, with strong values up until the 1990s and significant development clusters in: the east of Los Angeles in City of Industry — in Arcadia and West Covina (San Gabriel Valley); the northwest in Northridge, West Hills, Sherman Oaks and Woodland Hills (San Fernando Valley); the southeast in Whittier, Cerritos and Downey (Gateway Cities); and El Dorado Park and Los Altos (Long Beach).

  Unlike other commercial real estate sectors, the progress of retail remained largely unaffected by various crises up until the 2010s. For instance, in the 1960s, more than 22 million square feet of retail properties were completed throughout the county, 15.6 million square feet of which was in suburban locations. Then, between 1970 and 1979, another 26.9 million square feet of retail properties were completed. In fact, City of Industry alone added roughly 3 million square feet of retail space to the county’s inventory, including the massive, 2.8-million-square-foot Puente Hills Mall & Puente Hills East.

  While the number of new housing units doubled around Palmdale and Lancaster in the 1980s, retail projects totaling 1.2 million square feet were built in Lancaster in the same decade, and 3.9 million square feet of retail space hit the Palmdale real estate market between 1990 and 2010. Also during the 1980s, the retail sector witnessed the highest growth outside of manufacturing in the county, adding 8,000 jobs during a 10-year period. Retail continued its growth in the region between 1990-1999, as the inventory expanded by 29 million square feet. Palmdale added roughly 2.4 million square feet in the 1990s, with Antelope Valley Mall and Palmdale Marketplace on 10^th St. West among its largest projects.

  For many years, the aeronautics industry had a major role in the growth and purchasing power of Los Angeles County’s labor force. As the 2016 LAEDC report notes, defense contractors offered generous wages, including an average of $106,000 per year for both engineering occupations, which accounted for 22% of the total jobs, and production workers, which made up 26% of those employed in the industry.

  In contrast, at the tail end of the 2008-2009 global recession, much of Southern California’s recovery was driven by the expansion of the leisure and hospitality industry. While the growth of restaurants and hotels was a sign of increasing consumer spending, average wages for service workers are among the lowest and most precarious. Furthermore, both retail and hospitality are facing significant challenges today, which could result in their diminished role in an economic rebound in the near future. With the rise of e-commerce, the retail industry has found it difficult to attract both tenants and customers to its locations, and the resulting decline is evident when we look at the number of development projects built in the last 10 years — a modest 4.3 million square feet, the second lowest amount added since the end of World War II.

  Conclusions

  In many ways, the Los Angeles real estate market resembles a game of musical chairs, with each rising industry dominating the tenant roster and fueling development for a certain amount of time. For instance, as security and aerospace companies like Lockheed Martin downsized after a series of mergers in the 1990s, financial organizations such as Countrywide moved into the vacated office buildings. Likewise, warehouses and industrial properties that previously housed government-sponsored aeronautics projects are now geared toward the development of driverless vehicles, autonomous aircraft systems and robotics platforms.

  Meanwhile, after years of decreasing revenues following the rise of e-commerce, changes in the retail sector are bound to be further accelerated by the COVID-19 crisis. In fact, there have been calls to convert struggling malls into mixed-use projects that would pad Los Angeles’ housing inventory, or use vacant buildings as temporary hospitals or health care centers.

  Throughout the last 80 years, the evolution of real estate development in Los Angeles County demonstrates the region’s extraordinary ability to adapt and reinvent itself, making the most of its assets at any given time. This resilience has served Los Angeles well and remains an encouraging feature to possess, particularly in uncertain times.

  Methodology

  We looked at all completed office, industrial and retail properties in Los Angeles County.

  Only office properties larger than 25,000 square feet and industrial and retail properties larger than 50,000 square feet were included.

  Data extraction date: May 12, 2020

  Data sources: CommercialEdge

  Housing units as per the most recent U.S. Census Bureau records released in October 2018.