Wednesday, July 23, 2008

I whip out my crystal ball and try to predict the future of Downtown, Pt. 2

On Monday, I painted a pretty gloomy scenario for Downtown. But there are definitely reasons to be optimistic about the future.

The Good News
Fuel prices up: Oil prices have dropped over the past few days but they are still at historic highs. And with the economic shitstorm that's brewing, gas prices would have to plunge to make a real difference to struggling workers. That's bad news for most of the region, but good news for Downtown.

Effect on Downtown: We are the region's transportation hub. Every train line and nearly every bus line runs through Downtown. Even if your job isn't Downtown, you are likely to be able to reach it fairly easily on public transportation if you live Downtown. That should help bolster rental rates.



Condo sales surprisingly strong in other cities: Weirdly enough, condo sales have held up well in cities like Miami and Phoenix. There are a number of reasons why: condos are cheaper than houses, they tend to be located closer to employment centers, and empty nesters/Baby Boomers want a low maintenance home for their retirement.

Effect on Downtown: Okay, I know on Monday I said the condo market is dead. I'm still inclined to think that the condo market is non-existent in the short term, but in the long term, it could recover strongly because of the demographic trends described above.



Rental market will stay strong: Most units available Downtown are rentals and the demand for rentals will stay strong as long as the credit crisis continues. Also, Downtown rentals are priced well compared with neighborhoods such as Santa Monica, West Hollywood, Los Feliz, Silverlake, etc.

Effect on Downtown: Again, I know on Monday I said rental demand may go down. But I wouldn't be surprised if the Downtown residential population continued to see strong growth as more people opt to rent downtown.



Smaller scale retail may make a comeback: It's not available online, but the Wall Street Journal recently ran an article on how the big box stores--Wal-Mart, Sears, Target, etc.--are coping with the retail slump. One thing they are doing is moving towards smaller stores with a smaller number of products for sale.

Effect on Downtown: If smaller stores are becoming more attractive to retailers, it could be that they will be more willing to move into Downtown. I know, I know, I'm contradicting myself again. In this instance I'm inclined to believe the bad scenario will win out. But long-term, Downtown could become more attractive to mainstream retailers.



U.S. manufacturing may make a comeback: Surprisingly, the manufacturing sector is seeing a revival. This is because of several factors: a weak dollar means that Chinese goods are not as cheap as they used to be and it also means American made goods are more competitive. Also, expensive oil is increasing incentives to have goods manufactured closer to where they will actually be used. U.S. exports are up 39% since 2002, according to the Wall Street Journal.

Effect on Downtown: We are uniquely positioned to take advantage of this revival. From City-Data.com:

Los Angeles is the largest major manufacturing center in the United States, with 500,000 workers in manufacturing activities in 2003. The largest components are apparel (68,300 jobs), computer and electronic products (60,000 jobs), transportation products (54,600 jobs), fabricated metal products (49,900 jobs), food products (44,800 jobs), and furniture (27,400 jobs). The last few years have witnessed major economic expansion. The three-tiered, traditional economy (aerospace, entertainment, and tourism) has evolved into a well balanced, multi-tiered economic engine driven by unparalleled access to world markets.

...

Los Angeles is the nation's largest port in terms of value of goods handled and tonnage. Proximity to the major Pacific manufacturing nations—Japan, Korea, and Taiwan—and easy access to transcontinental rail and truck shipping, plus the large commercial facilities available at Los Angeles International Airport make the Los Angeles Customs District the largest in the nation.


City planners are already proposing that we create a "green industrial belt" along the LA River that would include manufacturing and middle income housing. From the LA Times:

Ideally, most of us would probably prefer a belt of parks, bike paths, nature havens and athletic fields stretching from the river's headwaters in the west San Fernando Valley to its outlet in Long Beach. But L.A.'s population is growing, and the city needs to build more affordable housing and create new jobs.

Which raises the question of what kind of development should take place on the river's vital downtown banks between Chinatown to the north and Washington Boulevard to the south, where much of the land is industrially zoned. Many pro-river activists and environmentalists want the railroads, junkyards and factories that currently border the river to be replaced by a greenbelt, along with some housing and low-rise office and retail buildings.

The City Council and the Community Redevelopment Agency have a different idea for the L.A. River's downtown west bank. They want to create a green Silicon Valley along the river from Main Street to Washington Boulevard, where a new generation of environmentally friendly industries would develop and manufacture renewable energy technologies such as solar and wind power. The proposal has the support of the council members -- Jan Perry, Jose Huizar and Ed Reyes -- whose districts would most directly benefit from it, and that means the remainder of the council is unlikely to oppose it.

Unfortunately, the green industrial belt is controversial because there haven't been public hearings on the proposal and many people reflexively oppose any manufacturing. But this could be a godsend for the blue collar communities east of Downtown.

It won't be as easy as making socks or marmalade, but for Huizar, who represents most of the Eastside, making "green" socks or marmalade would be OK too. He notes that clothing and food production are already well-established in his 14th District. "It's a natural location for green-collar jobs," he told me, because of its access to freeway and rail. Huizar and Reyes, driving forces behind the successes of the river-centered Cornfields and Taylor Yards park and recreation facilities upstream, want to see development on both sides of the waterway that would produce jobs for residents on the Eastside. Huizar particularly wants the old Crown Coach property to directly benefit the surrounding community because the 1984 victory in killing the prison proposal was a milestone of Latino power in the city.



Tech sector is surprisingly strong: From the WSJ (which alas does not have the article online):

At a time when many other companies are struggling amid high energy prices and a worsening credit crunch, [tech] firms are benefiting from healthy technology demand outside the U.S., the growing economic importance of the Internet, and widening use of cellphone and portable computers in emerging economies.

Effect on Downtown: Most people don't know this, but the One Wilshire building is the Internet hub of North America and possibly the entire Pacific Rim. Every single time you use the Internet, whether it's reading this blog, checking your email or downloading porn from Japan, the signal likely goes through One Wilshire. And the closer you are physically to One Wilshire, the more quickly you (and your users, if you're a business) can connect to the Internet.

In addition, USC has one of the most prestigious computer engineering programs in the U.S. USC grads are sought after by all of the major Internet companies. And a significant number of USC students are renting apartments Downtown, particularly in City West.

These two factors haven't generated a lot of employment Downtown--yet. But Silicon Valley has gotten extremely expensive and companies are looking for other locations. Downtown LA has both the infrastructure and the labor pool to create a local Silicon Alley. And USC grads already familiar with Downtown are likely to be more willing to both work and live Downtown.



That's it. My bottom line on all this is that Downtown is in for a rough time short term (as is the entire country) but is in a great position to do well down the road.

7 comments:

The Doodle Factory said...

Hello Soon To Be Neighbor! I've been peeking at your blog recently as well, playing close attention to the parking bits especially. Boyfriend and I are set to move into the SB Manhattan in about 3 weeks - we'll have one of the corner units on the 8th floor.

We currently live over on Spring btwn 7th/8th and I used to think our parking garage was the worst, but I'm swiftly learning something is better than nothing. The walk is a little dicey but I may end up keeping my car here since I need the flexibility of a 24 hour garage and we only pay $75 now.

Oh, downtown, I've come to love it but it's often a choice between evils.

Li said...

Welcome to the Manhattan! Ginny Case also lives here, so we're getting quite a number of bloggers in the building.

I hear you on the parking situation--if I didn't have a kid, I'd park in your current lot (walking extra blocks is totally worth it for that price), but with a baby, it's too much to deal with.

Browne said...

I knew about One Wilshire. I know this sound insane, but I never brought it up because I thought in regards to terrorism that would be the only reason hitting downtown LA would make any sense. Though I guess if terrorism is real, they probably would already know about this building...lol...funny the things you worry about.

Yeah if anything happens to that building (well this was five years ago) most of the west coast would go down in regards to internet and phone and credit card machines, I'm sure they have some kind of redundancy set up. Lets hope they do.

Browne

Anonymous said...

I just hope that the uptick in local manufacturing doesn't cause us to put our collective heads in the sand again; we've ignored the global trend of this type of work moving across the ocean to cheaper developing nations. Instead of trying to find a new "niche" market for the U.S. worker, we continue to try to figure out how to maintain our traditional modes of jobs and economy. Even if the dollar is weak today, allowing for a surge in local manufacturing, the reality is other than local-served type manufacturing, we will never be able to compete with emerging markets for cheap labor. So, let's hope that the doomsday that has been presented prior to this most recent return to manufacturing will serve as a catalyst to policy makers and every day americans that the days of american powerhouse manufacturing are over, and we need to find a new good (or service?) to sell in the global marketplace. And we needed it yesterday.
-chuppie

Li said...

Chuppie, my husband is going to weigh in on this in more depth next week, but wanted to say that there are a number of areas where the U.S. could dominate in manufacturing. For example, Caltech is a leader in alternative energy amd LA definitely has the capacity to gear up production in that area. But yes, we needed to start investing in these areas years ago--hopefully it's not too late to catch up.

Anonymous said...

Li,

I guess I should have been more clear. Traditional manufacturing is what I meant. Alternative energy, or manufacturing of a type that isn't necessarily directly competing with emerging markets manufacturing would obviously be a step in the right direction. We need to start selling american ingenuity, because once something becomes mainstream, there are places like india and china that can perform the same task at a fraction of the price. As the old maxim goes, "the game is to be sold, not told."

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