Anyone with skin in the game of investment in Southern California’s Aerospace Valley, tucked in the High Desert between the urban centers of Los Angeles and Bakersfield, might be interested in how the numbers are crunching for post-COVID recovery.
And the numbers that historically tell the region’s economic story are found in the details of real estate transactions and construction.
Two real estate industry professionals, one primarily focusing on the industrial and commercial arena, and the other focused primarily on residential properties, related the numbers leading to a hypothesis that while the COVID pandemic caused economic chaos and financial damage, in some respects the shakeups may have left this desert and mountain region better poised for growth and prosperity.
Citing a national real estate databank source, Harvey Holloway, owner of Coldwell Banker Commercial Valley Realty, examined the region’s five-year industrial, commercial, office, retail and large multi-family residential performance categories as one of Los Angeles County’s 48 sub-markets. Holloway said he used the national real estate statistical program Costar for his analysis.
Reporting primarily on single and small multi-family residential housing performance and trends in housing availability and population movement, was Realtor/Broker Keny Terracciano, owner of RE/MAX All Pro.
Taken together, the two independently conducted reports merged on some common themes, and even reinforced conclusions offered by speakers on other topics:
- Midway between the urban centers of Los Angeles and Bakersfield, the cost of housing in the Aerospace Valley is in a “sweet spot” for affordability. The good news is, this region offers residents lower rental rates, even in a tight market. The bad news is cheaper rents tend to deter new construction investment.
- Communities throughout the desert offer poor “curb appeal” to potential new residents driving into the valley, especially property motorists see for a mile or two in either direction.
- Rampant inflation, along with the Fed preparing to pull back on home mortgage stimulus, both threaten to raise costs and deter needed construction
To home office, or office at home?
Both real estate analysts offered the view that COVID-19 conditions substantially altered the work patterns for millions of Californians. Holloway noted that Covid-19 pandemic closures, restrictions, quarantines and supply chain breakdowns hit the commercial real estate market, with many office workers switching to working from home. “It’s going to take some time to see what percentage of these employees return to work at the office and how it’s going to drive the market for this type of space,” he said.
With 4.5 million square feet in office space, the Antelope Valley has a vacancy rate of 5.4 percent, well below the 10-year average, Holloway said. Rents are up slightly, by 0.9 percent.
The value of office sales for 2021 is the second highest in five years, at $33 million, and the median price is $155 per square-foot, second only to 2017.
L.A. sending next population wave
The remote working trend also affected the residential real estate market, with home buyers looking for more space to meet their telecommuting needs, or moving to other communities, since commuting is no longer a primary concern, said Terracciano of RE/MAX All Pro. “We’ve always been a bedroom community, but now you’re seeing more and more people coming from downtown.”
Terracciano offered examples of that movement from city to wide-open spaces in listing the 20 California cities that achieved 40 percent or higher population growth in 2020. Along with high-priced coastal and mountain enclaves, like Montecito and Tahoe were two attractive communities on the edge of Aerospace Valley — Tehachapi near Mojave Air & Space Port and Edwards AFB, and Acton, just a short freeway trip to Air Force Plant 42 in Palmdale.
Historically low interest rates have provided incentive for either home buying or refinancing, he said. Last year, the number of first-time homebuyers was the highest in the past 10 years.
That increased housing market pressure is increasingly driven by 21 to 39-year-old millennials entering the market as Baby Boomers are downsizing, Terracciano said.
Retail structural changes
Holloway said, “The Coronavirus impact on the retail market may lead to lasting structural changes within the retail section.” Holloway said, as e-commerce flourished and may have permanently altered shoppers’ patterns.
Discouraged by ongoing changes and confusion over pandemic safety protocols, including stay-at-home orders, many consumers accelerated and further altered their traditional shopping patterns, previously motivated by convenience and perceived savings of time and money.
Holloway reported local retail vacancies at 6.7 percent, are in line with the experience over the past five years, but higher than overall market averages. On the other hand, rents for retail stores are up one percent over the past 12 months, and sales of retail properties are below numbers for previous years, yet up from 2020.
Industrial space bright spot
With just under 11 million square feet of private industrial space, the region has so far retained its strength in the manufacturing sector, Holloway reported.
And even though it was a statistical anomaly, the industrial properties market showed a gain in the dollar value of sales in the past year, registering the highest total sale price total in the past five years. But nearly half of that $160 million total came in a single transaction, sale of the 930,000 square-foot RiteAid Distribution Center on 85 acres in Lancaster for $74 million.
Holloway said the median price for industrial space is $120 per square foot, the highest in five years.
Growth in large multi-family
The market for multifamily residential property, considered those with 10 units or more, is priced significantly lower than the rest of Los Angeles County and has made this the best-performing market in the region, Holloway said.
Vacancies have trended downward during the pandemic, which has made this “one of the tightest apartment locations in the metro (Los Angeles area),” he said.
However, the relatively low rents also tend to deter new development, he added.
Holloway’s bottom line
“Over all the Antelope Valley commercial market is mostly stable in the office and retail sectors, with industrial and multifamily sectors leading the way to growth,” and indicators suggest these trends will continue into 2022, Holloway concluded.
Terraciano observations
- “Challenge is opportunity. With historically low interest rates, there is no better investment than real estate.
- The period when sellers came to expect multiple offers well over asking price within a few hours of listing a house are over for now. It’s a “cool-down,” and much more balanced market for buyers, sellers and the economy, essentially extending the good market to a longer run, Terraciano said.
- The cities and communities need to improve on dealing with homelessness and crime. “Help the homeless, yes, but have it under control.”
- Lancaster and Palmdale need to be working better together, or even merging. “LA County is a beast. A Palmdale and Lancaster merger would have a large economic impact.” He said the Valley needs more master-planned communities and more indoor, year-round recreational facilities for kids and adults ñ maybe old Walmart stores.
New financing paves way to iInfrastructure
Los Angeles County Fifth District Supervisor Kathryn Barger announced her office is working with the city of Palmdale officials to use a new type of state-authorized financing for such infrastructure as streets, sewers and storm drains in areas where it is needed.
Supervisor Barger said the proposed Enhanced Infrastructure Financing District is seen as a replacement for the state’s local Redevelopment Agency financing programs.
The EIFD is intended to cover new industries, stores and homes in 23,000 acres within city limits and unincorporated land adjourning adjoining Air Force Plant 42, Ritter Ranch/Anaverde, central Palmdale and the Four Points area of southeast Palmdale.
Here’s the city/county plan so far
Editor’s Note: The following is excerpted from the Los Angeles County / City of Palmdale Financing Plan, proposing a $3.4 billion revenue potential — Not financed by taxes.
Palmdale EIFD encompasses approximately 22,971 acres of land — 18,860 acres located within Palmdale city limits (representing approximately 28 percent of the City’s total approximately 68,032 acres) and 4,140 acres located in unincorporated LA County. The purpose of the EIFD is to fund public investments in streets and roads, utilities, and exploration of an Antelope Valley County Service Center to help fulfill economic goals for the City, County, and State, as well as promote sustainability by connecting jobs and housing in the Antelope Valley.
The Palmdale EIFD boundaries are non-contiguous to take into account the jobs and housing centers of the city. The boundaries can be separated into three sub-areas:
- Aerospace Corridor, (6,800 acres),
- Commercial Centers (2,206 acres),
- Las Colinas (13,965 acres).
The Aerospace Corridor is centered around Air Force Plant 42 and what is being called the future Aerospace Valley Airport, poised for aerospace and industrial job growth. Land uses in the subarea include the airport and surrounding industrial/commercial developments. An estimated $859.7 million of public/private development projects in this area focus on high-quality job growth, including PMD airport operations and development, expansion of Air Force operations at Plant 42, the Hangar District, Aerospace Village, and industrial development surrounding the airport. This area also includes development sites eligible for Federal New Market Tax Credits.
The Palmdale Commercial Centers include some of the major commercial areas of the City. Land uses in the subarea include community and regional commercial development, the downtown area, parts of the Palmdale Trade and Commercial and Auto Center areas, the Palmdale Transit Village, Palmdale Regional Medical Center, multifamily and single family residential, and other commercial uses.
An estimated $674.2 million of public/private development in the southeast portion of the City is stimulated by several anchor projects that are catalysts for commercial development and job growth, including Palmdale Regional Medical Center, and Pelona Vista Parkway and Four Points Gateway mixed use projects.
The new Palmdale Transportation Center will serve as a regional, multimodal transportation hub supporting new jobs and housing in the Antelope Valley.