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Downtown LA's Growth To Continue, Driven By Arts District Boom

Rendering of plans for the G2 parcel by the LA River

Downtown LA's development growth and revitalization has spread within the city with increased U.S. and foreign investment and rising property values. LA is now second to Seattle for the most cranes in the U.S. This puts the market in a good position for continued growth in the years ahead while moving some districts into the forefront for the next wave of development, according to a report from Ernst & Young.

DTLA has had a surge in large, ground-up mixed-use developments and renovations to historical properties, the report notes. While mixed-use activity has concentrated in South Park in recent years, many of the proposed developments are in the Arts District, drawn in by lower prices and more undeveloped parcels. This includes $1.3B in revitalization efforts along the Los Angeles River.

"As South Park fills in, the Arts District looks to be an attractive option for those seeking a similar demographic of young office workers who want to live and play near where they work," the report's authors wrote.

The city is investing heavily in the Arts District and creating more connections through a new bridge and new light rail to support commuters who live or work in the district.

More than 415K SF of retail is proposed in DTLA mixed-use projects as brick-and-mortar stores seek ways to attract customers who might otherwise shop online.

Downtown LA also benefits from the city's low unemployment rate, which has supported office demand. Sales of office space reached $9.6B in 2016, a 10-year high, according to the report. Rents have risen as vacancies have fallen for the past three years. Class-A rents have risen 28.3% in the past 10 years.

As for hotels, the report highlights the effect of the opening of the 889-room InterContinental Hotel at the Wilshire Grand Center. The market may need time to absorb the new supply, the report says. Four new hotels will be online by the end of the year. The convention center needs to expand to draw in larger conventions, according to the report.

Residential real estate is strong, with Metropolis' first residential tower almost sold out, and Trumark Urban's Ten50 60% sold as of March and expected to sell out by the end of this year, according to the report.