September 18, 2023 - From the September, 2023 issue

Downtown ‘Doom Loops’? CBRE’s Jessica Lall on a Struggling DTLA & Impacts of Remote Work

Many major downtown city centers have continued to struggle in not just a post-COVID economy, but a post-COVID culture. With office vacancies in downtown Los Angeles and San Francisco at a record high, developers, economists, and city planners are looking to redefine what our downtowns might look like in the future. Central Business Districts are challenged with the prospect that if workers don’t return and offices remain empty, restaurants will shutter, transit agencies will go bankrupt, tax bases will plummet and, finally, public services will disappear. TPR, to afford our readers a insider’s take, spoke with CBRE’s Jessica Lall about how her firm’s research into downtown development is being put to use to shape those very conversations. She also comments on her personal hopeful outlook for the future of Los Angeles and her continued investment in the city’s civic leadership.

Jessica Lall

"Things are going to re-calibrate, as they always do. I'm also hopeful that we're going to be working together and have a more positive story to tell about the public and private sector being a part of mitigating the storm that hit downtown LA. We're committed to doing our part and inspiring others along the way." - Jessica Lall

Jessica, you’ve recently started working as a Managing Director for CBRE where you’ve been doing some research into the challenges we’re seeing in major urban centers following COVID and the subsequent economic downturn. For example, the Wall Street Journal just published a piece with the provocative title, Can San Francisco Save Itself From the Doom Loop. Talk about your reaction to this piece and how civic leaders are attempting to “save” the nation’s downtown business centers.

Jessica Lall: I personally haven't been to San Francisco recently. I say that because I think perception sometimes lags behind reality and we have to keep that in mind. We're all reading headlines and stories but I have actually spoken to a couple of people from our company who just got back from San Francisco who said that it's not nearly as bad as some of the media stories are portraying. CBRE as a company is very mindful of using data and research to guide our observations, versus jumping on the bandwagon, so to speak, about what direction cities are going.

The loss of major retail tenants and overcoming those issues is going to take time. I feel that their mayor has been active and bold, at least in attempting to continue to champion their downtown area. That kind of leadership is important in terms of restoring faith and making sure tenants, residents, businesses and conventions feel that the city is paying attention and concerned.

Cities go through cycles. They have a knack for redefining themselves and are resilient. We know this. Oftentimes it's seeing how low the bottom is before it rebounds. I think different cities across the US are going to see different examples of that take place. Our view is to be measured, to be thoughtful and to stay the course and continue to present a holistic image of what's going on, and not just with San Francisco and LA, but other major cities across the US.

Downtown Los Angeles has reported a record high vacancy rate, close to 30%, which has caused commercial office values to drop significantly. How are firms like CBRE reacting to the rise in vacancies and the dip in valuations --  in other words, the “office apocalypse?”

With vacancies being at an all-time high, it's definitely concerning. One of the things that we've been trying to do is really watch it closely. Some of this is within our control, and so much of it is the perfect storm of debt maturity, interest rates and hybrid work that is outside of our control.

As a part of our recently launched Civic Engagement Initiative, CBRE is taking that information about valuations and vacancy, turning it into digestible information, and then presenting it to our government leaders. With that they can make informed decisions with up-to-date information and understand the real estate market in downtown. I think being able to have that data in real time and sharing ideas is going to help us weather the storm.

Downtown LA is not in the 90s, it's not an office park any longer. It's a 24/7 residential, very dynamic, community. There were more than 22,000 multi-family units delivered from 2004 to 2023 – more than any other submarket in Greater Los Angeles.

We do still see people signing leases long term, we just also see them downsizing. It's not all doom and gloom for offices, even if we have a ton of inventory. Although, with a lot of these buildings going back to the banks and the lenders, that is problematic.

Denver’s downtown foot traffic still lags compared to pre-pandemic levels, despite new development projects and the launching of several large research initiatives. Is the same true for Los Angeles’s Central Business District?

Yes, I think foot traffic is challenged downtown, but I would also point out that we have Dodger games, basketball games, USC football, etc. There are a ton of events that are taking place downtown that are attracting folks. I heard from Metro the other day that their highest ridership is actually on the weekends – for example, Sunday rail ridership in July 2023 was 3.5% higher than it was in July 2019. So, I do believe there are still things that people are coming to downtown for. You still can't get a restaurant reservation downtown without advance notice.

When we're looking at foot traffic in terms of daytime foot traffic versus night and weekend, there's more of a challenge there.

Let's turn to the challenges of homelessness. There was a recent headline that city hall has turned all of Los Angeles into Skid Row. That's a pretty provocative headline. In another article about San Francisco, a resident commented on his city’s street life, saying, “No one will catch you if you fall [in downtown SF].” Give us your perspective on downtown LA today.

The prevalence of those experiencing homelessness on our streets continues to be an issue. Crime is also a problem, and there may be overlap, but those are by far and away the two biggest issues impacting downtown. When you have less people on the street and then you encounter someone on the street who's having a mental health crisis, you feel that interaction more intensely and more directly than when there are many more people on the street. I think that there is a psychological element to all of this that has come into play.

Recently, the mayor launched her Inside Safe program, which has been successful in terms of removing encampments. The Council Office has done a great job with some of the removals of encampments in key parts of downtown. I hear from our real estate brokers that they see improvements on Main Street and Broadway, places where it's previously been a no-fly zone. We have to acknowledge that there has been progress.

I was at a meeting with Chief Moore a couple of weeks ago; the numbers of violent crime have actually decreased in the Central Division dramatically since quarter one and decreased over the past year. We have to continue to tell those positive stories, even though we still have a lot of work to do. It's an extremely complex situation but, in totality, homelessness is one lane that is impacting the broader narrative about downtown.

You're representing CBRE, the private sector – how can the private sector, in concert with the public sector, begin to bend the curve here? How is CBRE’s real estate research being put to use? Note, Denver city officials have initiated a number of pricey plans in concert with developers to bring life back to their central business district. Are you seeing similar activity - public, private, and civic collaborations - in downtown Los Angeles?

CBRE has so much data and research that we put out in reports. Our CEO is constantly encouraging us to think of ways to put that information to work, because it's not really useful if it's not making a difference. What we've done is we've taken that data and have been meeting individually with city council members, the Mayor, county supervisors, etc., and tailored it to their district. What's going on in terms of retail, return to office, industrial? What trends are we seeing?

We've met with over half the council and from them we try to take their concerns and turn them into things that we're looking at. For example, we're looking at how the city can better utilize its balance sheet for innovative housing models. A lot of these are not new ideas out of nowhere, it's taking best practices that we've seen across California and the US and figuring out ways that we can apply what we know works to the city of Los Angeles. We're seeing some interesting policy ideas come to bear as a result of it.

That's how we start to build bridges between companies who have expertise to help our policymakers make more informed decisions as they try to navigate these very complex waters. We have so much talent here that could really help by leaning in, in that regard. We also have very receptive elected officials who know they can't solve these problems alone and have a willingness to work collaboratively.

When it comes to a return to normal, will DTLA return to the normal, or are things likely to be much different going forward?

I think they're going to be different. I don't think we're going back to some past time and place, we're creating a new normal and, right now, we're sort of in the midst of a storm and waiting to see how things will land. There's a lot of uncertainty around that right now. Some of it, we can lean in and mitigate but we can't change the fact that the storm is here.

Nearly a decade ago, under Lewis Horne, CBRE made a radical change in the use of their own office space, which set a new normal for “efficient use of office space.” What are similar trends that might give us an indication of what the new, new normal is going to be?

CBRE went to a 360 workspace years ago. Downtown LA was actually the first office to implement that. We now have four offices, five within our greater LA region, and we operate as a 360. We see, for example, our El Segundo office having one of the highest occupancies for offices across the country. Downtown is a little below average. What we're seeing from that is: proximity to where people live, places they perceive to be safer, where they can go out and have lunch, they are doing better in terms of occupancy. We're seeing that very clearly.

Our El Segundo office is also newer, and technology for our clients, the integration of zoom rooms, makes it a better experience to be in the office rather than at home. This is the challenge all workplaces are facing right now. How can you make it compelling to come in? When you create that compelling environment, we're seeing it be really successful.

If today you were a senior City Hall policy maker, would you devote special resources to address LA’s downtown challenges or would you distribute the resources citywide?

I think you distribute resources downtown strategically because downtown has an outsized role to play in our housing crisis and getting people out of their cars. The labor demographics still favor downtown over other parts of the city. Our research shows that those numbers are only going to continue to grow. Downtown continues to be the tax base and support for the rest of the city.

That doesn't mean you just throw money at that and ignore everything else, there still needs to be a strategy and policy. The Mayor's office is intelligently looking at what the future of the office space downtown is and what industries we should be focusing on. We have to be smart and strategic about it by promoting the right set of policies and being willing to adapt them as we continue to see the market shift, which is going to continue to happen as this unfolds.

Previously, you led the Central City Association and, before joining CBRE, you had the audacity to campaign for Mayor of Los Angeles. In your mayoral campaign, you often addressed a seemingly apparent disconnect between the public and private sector in the city. Elaborate on this civic disconnect.

There isn’t always enough information sharing and communication between the two so a policy or initiative passes and people feel they weren’t able to weigh in on it. That's exactly the purpose of the Civic Engagement Initiative that I've been referencing, to build a better partnership and better communication on the front end, so that better decisions are being made in real time.

Many commentators have noted growing distrust between leaders of both the public and  private sectors. How might civic LA build back trust?

If you sit apart and you continue to be frustrated, you're just going to perpetuate those negative narratives. You have to roll up your sleeves and start somewhere and that's what we're trying to do. You have to say, ‘Okay, here's a problem that we can all agree is a problem. How can we work on this one issue?’ I'm seeing this trust building at work and I hope that it has a long term impact. I also hope that it inspires other companies to have similar conversations and, likewise, elected officials to be open to talking to people who they don't naturally see as their inherent constituents.

Before concluding, share your vision for the future of downtown Los Angeles.

It’s going to be a rough couple of years, but I think downtown LA is going to bounce back. We’ll likely start to see that shift by mid-2025. The downtown area is an anchor in the future of Los Angeles. The Olympics are coming up and there are many positive things happening in the area, so right now is a great time to invest if you can weather the storm because things are going to recalibrate, as they always do. I'm also hopeful that we're going to work together and have a positive story to tell about the public and private sector being a part of the solution for the challenges facing downtown LA. We're committed to doing our part and inspiring others along the way.


© 2024 The Planning Report | David Abel, Publisher, ABL, Inc.