LA Business First

Despite a trend of businesses departing or downsizing their downtown Los Angeles offices since the pandemic, commercial brokerage Lee & Associates decided to move in, opening a new office downtown this summer to “dig in” to the real estate scene there.

“We're kind of contrarians by heart,” Jack Cline, president of Lee & Associates’ new downtown office, told L.A. Business First. “Many of the major competitors of ours have moved out or downsized in downtown L.A., whether it's into the South Bay or taking corporate headquarters out of state. We determined that Los Angeles is such a dynamic place and has so many different types of industries, and so many things that we would never imagine before are occupying the buildings around L.A.”

Lee & Associates, with offices across California and the U.S., has been facilitating industrial and office deals downtown for some time, representing 40% of industrial market listings in the area and observing the evolving markets merging with industrial. Cline moved to the new office from the brokerage’s Commerce office in June with 15 other brokers who decided to relocate downtown to be closer to the real estate action.

Being closer to the action also means seeing trends and pockets of the market with a sharper perspective. Cline said leasing activity has not slowed in the coveted office and industrial markets, where vacant space for industrial was 1.7% in the second quarter of 2022, according to a report from Avison Young that also stated office leasing activity downtown was up 48%. Yet for high-rise office space, stagnant activity presents a struggle.

“There’s at least vacant ready-to-go space, whether it's a creative office ready-to-go space, or it's an industrial building ready-to-go space — usually there's transactions occurring,” he said. “High-rise space is, I believe, a challenge.”

Across L.A. County as a whole, office space saw an overall vacancy rate of 14.2% in the second quarter of 2022, with low- to mid-rise buildings seeing 11.8% vacancy and high-rise buildings climbing to 18.4%, according to a recent office report from NAI Capital. In the first half of the year, low- to mid-rise office buildings in the county gained 1.4 million square feet of net absorption, while the same data for high-rises showed a negative net absorption of 1.05 million square feet.

Cline said he doesn’t see leasing activity slowing in the street brokerage side of the industry, while capital markets have been “choppy.” For transactions in capital markets, the advice to brokers is “take a breath and settle down” until the market peaks and slows, giving brokers a chance to pause before moving forward with transactions currently stalled or underway.

While the Financial and Arts District saw continuous activity in the past year, Cline said momentum is building in Chinatown with the development of a successful mixed-use project, plus a number of wineries, breweries, a cider house and an influx of young professionals, a key element of a flourishing neighborhood.

“When rates go up and it's 40% more to borrow money than it was six months ago, there is a bite down on what the sellers' value expectations are, but the idea of the economic activity that is going on in this area within the space of this area has one of the greatest opportunities for growth,” Cline said. “Young, dynamic people are flocking here, and that's where you're gonna get the growth: when you have smart, young folks that have ideas and ambition.”

Cline noted policy challenges downtown weighing down the market, especially in terms of housing and affordability for talent relocating to be closer to desired industries. As office and industrial rent in the area rises in price, housing has followed a similar trend. While the housing stock in East Downtown to Lincoln Heights and Highland Park remains more affordable for downtown employees, Cline stated the options in downtown as a whole are limited, pointing to changes in policy as a remedy.

Focusing on multifamily and residential properties isn’t Cline’s speciality, as he refers to himself as an “industrial guy,” but affordable housing downtown remains prevalent as the return-to-office conversation continues.

Getting brokers into Lee & Associates’ new office wasn’t a challenge, Cline said. The brokerage isn’t located in a highly amentized Class A building, but the office is decked out with a golf simulator room, social spaces, a full kitchen and a “wall of wisdom” filled with books to help promote a flow of ideas and creativity in the office.

“Obviously we're interested in the bottom line, as everyone else is, but our goal and purpose is to grow people, see folks improve for themselves, and as long as they're with us, we're gonna improve because they're improving,” Cline said.