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CityofLosAngeles:AComparativeAnalysis

June2017

City of Los Angeles: A Comparative Analysis

This publication was prepared for:

Montague DeRose and Associates on behalf of the City of Los Angeles

This publication was prepared by:

Beacon EconomicsChristopher Thornberg Robert KleinhenzFounding Partner Executive Director of Research5777 West Century Boulevard, Suite 895 5777 West Century Boulevard, Suite 895Los Angeles, California 90045 Los Angeles, California 90045310.571.3399 [email protected] [email protected]

Bryan Castro Hoyu Chong Clarissa PaikResearch Associate Research Associate Research [email protected] [email protected] [email protected]

For further information about this publication please contact:

Victoria Pike Bond Rick SmithDirector of Communications Director of Business DevelopmentBeacon Economics, LLC Beacon Economics, LLC415.457.6030 [email protected] [email protected]

Or visit our website at www.BeaconEcon.com.

Reproduction of this document or any portion therein is prohibited without the expressed written permission of Beacon Economics.Copyright ©2017 by Beacon Economics LLC.

mailto:[email protected]







http://www.beaconecon.com/

Contents

Overview 1Highlights 2Employment 5Business Activity 7Residential Real Estate 16Commercial Real Estate 20Demographics 24

Beacon Economics Comparative Analysis

Overview

The City of Los Angeles is in the midst of a renaissance, with no shortage of economic opportunities on the horizon.Despite California’s reputation for being "anti-business," Los Angeles continues to be a significant source of Califor-nia’s growth. The vast majority of indicators show that 2016 was a good economic year and that economic growthwill extend into 2017.

A key area of ongoing strength in the City of Los Angeles is growth in the labor market. As the U.S. economy contin-ues into its current expansion, the City’s labor market will continue to inch towards full employment. In addition,wages are increasing across most industries. More Angelenos will see their hours and earnings increase this year,and more will find full-time employment.

In general, the City has regained the economic activity that was lost during the Great Recession. Despite concernsover China and weak global demand, the economy keeps moving forward. Many local industries are expanding theirjob bases. Trade through the ports has picked up compared to the previous year. Even so, there are concerns aboutthe types of job gains, especially middle-wage jobs, and the adequacy of the wage increases that accompany thesejobs.

Los Angeles has set a tourism record for the sixth year in a row. Both hotel daily rates and average occupancy rateshave increased. Downtown is a huge new center of social activity, restaurants are booming across the City, and thehotels are busy. Los Angeles offers some of the world's greatest attractions, and for this reason the City is one of thetwo finalists to host the 2024 Summer Olympic Games.

Demand for housing is now stronger than it has been at any other point during the current economic expansion, duein large part to the improved state of household finances and historically low interest rates. Many households haveturned to the City’s rental market for housing needs, making it one of the hottest rental markets in the nation. Yet,with higher home prices and apartment rents, Los Angeles once again finds itself facing a chronic and persistentproblem: Housing prices have escalated faster than incomes, resulting in a heavier housing cost burden for manyAngelenos. While Los Angeles has experienced outmigration due to the high cost of living, particularly for housing,inbound entrants to Los Angeles tend to be wealthier than outbound migrants.

The Citywill continue to facemajor obstacles - fromwithin and from the current federal administration - tomaintainits prosperity. However, the outlook is highly positive going forward.

City of Los Angeles: A Comparative Analysis 1


Highlights

Employment

Wages in the City of Los Angeles grew at a rateof 4%, double the rate of growth for the rest ofthe County. As the economic recovery continues,wages are increasing across most industries.

Total private employment in the City of Los Ange-les grew 1.4% from the second quarter of 2015 tothe second quarter of 2016.

Business Activity

With the unemployment rate on the decline, busi-nesses are hiring and consumers continue tospendmore of their incomes in the local economy.Taxable sales have grown 39.1% since reaching alow in the second quarter of 2009.

Taxable sales for the City of Los Angeles increasedby 4.4% from the fourth quarter of 2015 to thefourth quarter of 2016, outperforming other ma-jor cities in Southern California such as the City ofLong Beach (+0.7%), the City of Riverside (+3.1%),the City of Santa Ana (+2.2%), and the City of Ana-heim (-0.7%).

Tourism

Through its attractions, experiences, and cul-tures, Los Angeles continues to be a destination ofchoice for tourists. In 2016, nearly 23 million in-ternational passengers traveled through LAX, anincrease of 11.2% from2015, alongwith the 58mil-lion domestic passengers also traveling throughLAX, up 8.4% from 2015.

Known not only as the largest railroad passengerterminal in the Western United States, Los An-geles' Union Station is the busiest California Am-trak stationwith 1.64million riders in 2016, a 2.9%growth compared to 1.59 million riders in 2015.

1.2

1.3

1.4

City

Em

ploy

men

t (M

illion

s)

2.0

2.2

2.4

Cou

nty

Bala

nce

Empl

oym

ent (

Milli

ons)

Q1-08 Q1-10 Q1-12 Q1-14 Q1-16

LA County Balance LA City

Source: California Employment Development Department,QCEW

County and City Total Private EmploymentLos Angeles, Q1-08 to Q2-16

7

8

9

10

11

12

City

Tax

able

Sal

es ($

Billi

ons,

SA)

18

20

22

24

26

28

Cou

nty

Taxa

ble

Sale

s ($

Billi

ons,

SA)

Q1-00 Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Q1-12 Q1-14 Q1-16

Los Angeles County Balance Los Angeles City

Source: California Board of Equalization

City of Los Angeles and Los Angeles County, Q1-00 to Q4-16Taxable Sales

0

20

40

60

80

Milli

ons

of P

asse

nger

s

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Visit California

2007 to 2016Los Angeles Airport Passenger Flows

Domestic International



Commercial Real Estate

Strong business activity and foreign investmenthave led to growth in commercial real estate inthe City of Los Angeles in recent years. Renova-tions of older buildings has driven commercial de-velopment in the City of Los Angeles since the pas-sage of the Adaptive Reuse Ordinance in 1999. In2016, nonresidential alteration permit values filedin the City rose 27.4% to $1.6 billion, representing65% of all nonresidential investment overall.

Vacancy rates fell 0.7% between the fourth quar-ter of 2015 and the fourth quarter of 2016 for officeproperties in the City, compared to a 2.7% declinein the County Balance.

Residential Real Estate

Themedian price for existing single-family homeshas increased significantly in the City of Los Ange-les, just as it has for other cities in Southern Cali-fornia. The L.A. Median grew by 8.5% from 2015 to2016 reaching $641,000, while the County balancemedian grew by 7.4% over the same time period.

Due to strong homebuyer demand and low supplyof homes, many potential homebuyers are reluc-tantly shifting to the rental market. The averagemonthly apartment rent in the City of Los Angelesreached $1,833 in the fourth quarter of 2016.

Demographics

Despite high costs of housing, the City of Los An-geles has remained an attractive labor marketfor young adults aged 20 to 29 years, who com-prise the largest cohorts by age, and constitute thelargest share of migrants to the County.

The City of Los Angeles has been a disproportion-ate contributor to population growth and has ac-counted for more than one in two residents addedsince 2010. It has outpaced the rest of the Countywith a growth rate of 6.3% during that time, com-pared to 3.1% in the rest of the County.

0.0

0.5

1.0

1.5

2.0

Perm

it Va

lues

($ B

illion

s)

2007 2009 2011 2013 2015

L.A. County Balance L.A. City

Source: California Homebuilding Foundation

City of Los Angeles and County Balance, 2007 to 2016New Commercial Permits

250

350

450

550

650M

edia

n Pr

ice

($00

0s, S

A)

Q4-06 Q4-08 Q4-10 Q4-12 Q4-14 Q4-16

L.A. County Balance City of L.A.

Source: DataQuick

City of Los Angeles, Q4-06 to Q4-16Median Price for Existing Single-Family Homes

100

105

110

115

120

Inde

x =

100

in 1

990

1990 1995 2000 2005 2010 2015

L.A. City L.A. County BalanceSource: California Department of Finance

City of Los Angeles and Los Angeles County Balance, 1990 to 2017Population Growth



Port Activity

Despite a strong U.S. dollar, export activities wereup in 2016 for both the Port of Los Angeles (+3.1%)and the Port of Long Beach (+4.5%), reversing thedisappointing performance in 2015 motivated inpart by labor strikes at the ports.

The total value of imports to both ports in 2016 to-taled $296.5 billion, a 0.5% decrease compared to2015 values.

The drop-off in port activity with China that waspresent in 2015 carried over to 2016. While thevalue of imports fromChina remainedunchanged,exports to China fell 0.7% from 2015.

50

100

150

200

250

300

Tota

l Val

ue, $

Billi

ons

2003 2005 2007 2009 2011 2013 2015year

Port of Los Angeles Port of Long BeachSource: WISERTrade

Ports of Los Angeles and Long Beach, 2003 to 2016Total Trade by Value of Commodities (Imports and Exports)



Employment

Labor markets in the City of Los Angeles and in the balance of Los Angeles County continue to post steady gainsand are poised for further growth in 2017. Total private employment in the City of Los Angeles continues to grow,albeit at a slower pace than in the rest of the County. From second quarter of 2015 to the second quarter of 2016,employment in the City grew by 1.4% while employment in the balance of Los Angeles County grew by 4.1%. Overall,the City of Los Angeles accounts for nearly 37% of total private employment in the County.

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City

Em

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t (M

illion

s)

2.0

2.2

2.4

Cou

nty

Bala

nce

Empl

oym

ent (

Milli

ons)

Q1-08 Q1-10 Q1-12 Q1-14 Q1-16


Source: California Employment Development Department,QCEW

County and City Total Private EmploymentLos Angeles, Q1-08 to Q2-16

40

45

50

55

60

65

Aver

age

Wag

e ($

000s

)

Q1-08 Q1-10 Q1-12 Q1-14 Q1-16


Source: California Employment Development Department, QCEW

County and City Private Average WageLos Angeles, Q1-08 to Q2-16

At $62,200, the private average wage is significantly higher in the City of Los Angeles than in the rest of the County,where it is $56,100. From the second quarter of 2015 to the second quarter of 2016, the average wage grew by 4% inthe City, double the rate of growth for the rest of the County.

Employment gains have registered across a broad range of industries in the City in recent years, and the region iscreating jobs on both ends of the wage spectrum. Natural Resources (NR) and Construction was the fastest grow-ing industry, increasing 9.1% from the second quarter of 2015 to the second quarter of 2016 and reaffirming theobservation that developers are capitalizing on residential and commercial development opportunities. Other fast-growing industries over the same period were Transport, Warehouse, and Utilities (8.8%) and Education (6.2%). Suchhigh-skilled sectors as Information (1.5%), Professional, Scientific, Technical Services, and Management (1.1%), andFinancial Activities (0.8%) posted more modest growth. After being primary drivers of growth during the economicrecovery, these office-based sectors saw job growth cool. Employment in these industries accelerated rapidly duringthe recovery and in the early stages of economic expansion, but more recent employment trends have shifted toindustries that cater to the local population, such as Leisure and Hospitality and private Education.

Only two industries lost jobs from the second quarter of 2015 to the second quarter of 2016. Wholesale Trade ex-perienced a decrease of 3.8% and Manufacturing contracted at a rate of 8.1%, for combined losses of 11,000 jobs.This decline is consistent with the long-term decline of manufacturing employment nationally, although the valueof manufacturing output is at or near record highs.

Apparel Manufacturing employment has been particularly hard hit in the City of Los Angeles, declining 18.7% fromthe second quarter of 2015 to the second quarter of 2016. Some noteworthy manufacturers have suffered significantlosses; American Apparel’s declining sales and rising costs, for example, caused the company to file for bankruptcy,and many workers were laid off.



Industry Employment, City of Los Angeles, Q2-16Employ- Y-o-Y Growthment City County City

Industry (000s) (%) (%) Share (%)

NR/Construction 46.9 9.1 4.6 33.1Transport/Warehouse/Util 64.6 8.8 5.4 37.3Education 51.1 6.2 -4.8 51.9Leisure and Hospitality 196.7 2.9 6.1 39.1Information 58.4 1.5 22.1 24.9Other Services 64.2 1.4 0.4 43.1Prof, Sci, Tech, and Mgmt 142.3 1.1 -2.6 43.2Financial Activities 97.3 0.8 4.5 44.7Admin Support 92.1 0.8 2.7 34.2Health Care 258.6 0.6 6.5 40.0Retail Trade 145.5 0.6 1.0 34.8Wholesale Trade 69.8 -3.8 2.0 31.2Manufacturing 93.0 -8.1 3.0 26.0

Total Private 1,389.7 1.4 4.1 36.7Source: California Employment Development Department, QCEW

Compared to the 1.5% increase in Information employment in the City of Los Angeles, the rest of the County hada 22.1% increase from the second quarter of 2015 to the second quarter of 2016. The Motion Picture and SoundRecording subsector was a major driver of this growth. This subsector alone added nearly 30,000 jobs year over year.However, many of these jobs were probably on the lower end of the pay scale, given that the industry’s average wagein the balance of the County declined by 11.5%. Conversely, the Information industry saw the average wage in theCity increase by 10.7%, year over year, to a citywide high of $139,100.

Industry Average Wage, City of Los Angeles, Q2-16Average Y-o-Y GrowthWage City County Relative

Industry ($000s) (%) (%) Wage*

Information 139.1 10.7 -11.5 56.3Health Care 45.5 8.0 2.1 6.5NR/Construction 57.6 5.8 0.5 -9.4Wholesale Trade 63.3 5.0 1.1 1.3Financial Activities 120.4 4.6 2.7 42.6Manufacturing 57.4 4.5 9.0 -19.0Other Services 37.1 4.1 0.1 4.4Leisure and Hospitality 42.2 3.5 2.5 25.3Transport/Warehouse/Util 59.8 3.1 -1.5 -4.3Admin Support 41.2 1.8 7.8 5.4Retail Trade 35.6 0.9 -1.9 6.9Prof, Sci, Tech, and Mgmt 106.6 0.7 2.3 8.9Education 62.7 -2.9 6.9 28.0

Total Private 62.2 4.0 2.0 10.9Source: California Employment Development Department, QCEW*Industry Wage relative to the Avg. Annual Wage for the Industryin Los Angeles County.

As the economic recovery continues, wages are in-creasing across most industries. In the City, threeother industries, besides Information, saw aver-age wages grow at rates of at least 5.0%: HealthCare (8.0%), NR/Construction (5.8%), and WholesaleTrade (5.0%). Health Care average wage growth wasled by growing employment in the high-paying Am-bulatory Health Care Services subsector, which hada growth rate of 4.8% year over year in both the Cityand the balance of the County.

Average wages in Manufacturing increased by 4.5%.This suggests that many of the jobs lost by the Man-ufacturing sector were low-paying jobs in such sub-sectors as Food Product Manufacturing and ApparelManufacturing. In the City, Private Education wasthe only industry for which the average wage de-creased from the second quarter of 2015 to the sec-ond quarter of 2016, dropping 2.9%. This implies thatthe new jobs in the Private Education industry pay below-average wages, yet the fastest-growing subsector for theCity was Educational Services, which grew at a rate of 6.2% from the second quarter of 2015 to the second quarter of2016, primarily because of private institutions of higher education.



Food Services and Drinking Places grew by 3.1% in the City and 6.4% in the rest of the County from the second quarterof 2015 to the second quarter of 2016, largely because of increased consumer spending as local household incomeshave increased. Record tourism has also helped to propel this subsector’s growth. Although this subsector continuesto expand payroll employment, the subsector’s average wage in the City is $22,400, in part because many workers inthis subsector work less than full time.

Industry Employment, City of Los Angeles, Q2-16Employ- Y-o-Y Growth Cityment City County Avg. Wage

Industry (000s) (%) (%) ($000s)

Specialty Trade Contractors 29.6 8.5 8.4 49.6Educational Services 51.1 6.2 -4.8 62.7Ambulatory Health Care Services 79.4 4.8 4.8 63.2Personal And Laundry Services 23.8 4.6 0.9 28.1Hospitals 46.7 3.4 3.2 80.6Food Services And Drinking Places 145.5 3.1 6.4 22.4Professional And Technical Services 124.4 2.0 -3.1 104.5Real Estate 26.9 1.6 4.3 72.8Motion Picture And Sound Recording Industries 24.2 1.6 27.7 154.8Nursing And Residential Care Facilities 32.0 1.5 1.0 34.0Food And Beverage Stores 35.0 1.4 -1.7 28.7Insurance Carriers And Related Activities 24.2 1.4 13.4 109.2Administrative And Support Services 90.2 0.9 2.6 40.9Merchant Wholesalers, Durable Goods 26.3 -1.8 0.5 63.5Merchant Wholesalers, Nondurable Goods 36.4 -4.6 4.6 56.2Source: California Employment Development Department, QCEW

The Merchant Wholesalers of Nondurable Goods subsector saw job losses of 4.6% from the second quarter of 2015to the second quarter of 2016. This subsector alone accounted for about 64% of the 2,800 jobs lost by the WholesaleTrade industry. The largest declines in payroll employment were in Wholesale of Retail Goods. It is evident that thedecline of Apparel Manufacturing has had negative ramifications for related subsectors. Another factor contributingto the job losses in the Wholesale industry is the rise of e-commerce, which has allowed firms to connect directlywith consumers and thus circumvent the wholesale-retail supply chain.

Overall, there are plenty of reasons to be sanguine about the Los Angeles economy, for both the City and the bal-ance of the County. The region’s labor market appears to be primed for continued growth in 2017. Wage gains in thepresence of a tight labor market will provide a solid foundation for positive trends in consumer spending, businessinvestment, and real estate.

Business Activity

Taxable sales in the City of Los Angeles and in the balance of Los Angeles County have generally increased in re-cent years, after declining sharply during the Great Recession and bottoming out in 2009. Improving labor marketconditions have contributed to job growth and wage gains, which have increased personal income for residents andboosted taxable sales. Having hit a cyclical low in the second quarter of 2009, taxable sales had rebounded 39.1%in the City and 43.3% in the balance of the County by the fourth quarter of 2016. Consumer spending in the City in-creasedmore slowly than in the balance of the County from 2015 to 2016. Net of aberrations, from the fourth quarterof 2015 to the fourth quarter of 2016, taxable sales for all of Los Angeles County grew 5.3% over the year-earlier salesperiod, with 4.4% in the City of Los Angeles and 5.7% in the balance of the County.



7

8

9

10

11

12

City

Tax

able

Sal

es ($

Billi

ons,

SA)

18

20

22

24

26

28

Cou

nty

Taxa

ble

Sale

s ($

Billi

ons,

SA)

Q1-00 Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Q1-12 Q1-14 Q1-16

Los Angeles County Balance Los Angeles City


City of Los Angeles and Los Angeles County, Q1-00 to Q4-16Taxable Sales

70

80

90

100

110

120

Coun

ty T

axab

le S

ales

, Ind

exed

(100

= Q

1-06

)

Q1-06

Q1-07

Q1-08

Q1-09

Q1-10

Q1-11

Q1-12

Q1-13

Q1-14

Q1-15

Q1-16

Q1-17

Los Angeles County Orange CountySan Diego County Riverside-San Bernardino MSA


Selected Counties, Q1-06 to Q4-16Taxable Sales

90

100

110

120

130

140

150

160In

dexe

d Ta

xabl

e Sa

les

(100

= Q

4-02

)

Q4-02

Q4-03

Q4-04

Q4-05

Q4-06

Q4-07

Q4-08

Q4-09

Q4-10

Q4-11

Q4-12

Q4-13

Q4-14

Q4-15

Los Angeles Long Beach AnaheimSanta Ana Riverside San Diego


Los Angeles and Selected Cities, Q4-02 to Q4-16Taxable Sales of Cities (Indexed)

Consumer spending growth in the City has been ro-bust over the long run. From the fourth quarter of2006 to the fourth quarter of 2016, taxable sales inthe City of Los Angeles increased by 15.9%, outpacingthe City of Long Beach (+7.6%), the City of Riverside(+12.8%), and the City of Santa Ana (+1.3%). Taxablesales grew by 16.7% in the City of Anaheim and 16.8%in the City of SanDiego over the same 10-year period.

The City of Los Angeles outperformed most majorSouthern California cities (except for the City of SanDiego) in terms of taxable sales, on a year over yearbasis. From the fourth quarter of 2015, taxable salesincreased by 4.4% in the City of Los Angeles, 0.7% inthe City of Long Beach, 3.1% in the City of Riverside,2.2% in the City of Santa Ana, and 6.6% in the City of San Diego. Taxable sales decreased by 0.7% in the City of Anaheimduring the same period.

Compared to other major cities in Los Angeles County, the City of Los Angeles fared well, given that taxable salesgrowth is more volatile in smaller cities. From the fourth quarter of 2015 to the fourth quarter of 2016, only the Cityof Torrance (+9.2%), the City of Pasadena (+9.2%), the City of Santa Clara (+5.9%), the City of Burbank (+20.2%), and theCity of Cerritos (+8%) showed faster taxable sales growth. Taxable sales revenue decreased during the same periodin the City of Glendale (-3.7%), the City of Santa Monica (-2.7%), and the City of Beverly Hills (-2.7%).

Consumer spending growth in the City and the balance of the County has been robust over the long run, as it hasbeen in all counties in Southern California. From the fourth quarter of 2006 to the fourth quarter of 2016, taxablesales in Los Angeles County increased by 14.7%. Over the same 10-year period, taxable sales increased 9.0% in OrangeCounty, 18.5% in San Diego County, 17.9% in the Inland Empire, and 20.8% in the State of California overall.



Taxable Sales by RegionLos Angeles City and Comparison Cities, Q4-15 to Q4-16

Quarterly Taxable Sales Quarterly Taxable SalesPer Capita

Region Q4-15 Q4-16 Change Q4-15 Q4-16 Change

City in $ millions (%) in $ (%)

Los Angeles 11,035.2 11,515.9 4.4 2,772 2,857 3.0Long Beach 1,230.6 1,239.2 0.7 2,554 2,555 0.0Anaheim 1,697.0 1,685.5 -0.7 4,774 4,706 -1.4Riverside 1,356.1 1,398.2 3.1 4,216 4,306 2.1San Diego 5,545.7 5,913.7 6.6 4,020 4,249 5.7Santa Ana 1,005.6 1,027.5 2.2 2,949 2,996 1.6Sources: California Board of Equalization, California Department of Finance

Taxable Sales by RegionLos Angeles County Cities, Selected Counties, and California, Q4-15 to Q4-16

Quarterly Taxable Sales Quarterly Taxable SalesPer Capita

Region Q4-15 Q4-16 Change Q4-15 Q4-16 Change

City in $ millions (%) in $ (%)

Los Angeles 11,035.2 11,515.9 4.4 2,772 2,857 3.0Torrance 964.7 1,053.0 9.2 6,582 7,155 8.7Glendale 1,023.7 985.5 -3.7 5,128 4,887 -4.7Pasadena 739.6 807.6 9.2 5,291 5,727 8.2Santa Clarita 758.5 803.4 5.9 3,513 3,658 4.1Santa Monica 818.6 796.2 -2.7 8,793 8,503 -3.3Burbank 655.7 788.3 20.2 6,256 7,500 19.9Cerritos 701.5 757.9 8.0 14,257 15,339 7.6Beverly Hills 724.4 705.1 -2.7 20,929 20,283 -3.1

County in $ millions (%) in $ (%)

Los Angeles 37,474.0 39,463.2 5.3 3,690 3,853 4.4Orange 15,158.3 15,812.3 4.3 4,809 4,968 3.3San Diego 13,361.2 14,228.9 6.5 4,094 4,327 5.7Riverside-San Bernardino 17,122.3 17,850.5 4.3 3,857 3,978 3.1

California 157,138.3 167,648.2 6.7 4,039 4,271 5.7Sources: California Board of Equalization, California Department of Finance

Taxable Receipts by Major CategoriesLos Angeles County, Q4-15 to Q4-16

Q4-15 Q4-16 Change Share ofCategory ($ millions) ($ millions) (%) Taxable Receipts

Restaurants and Hotels 57.0 59.9 5.1 15.4Autos and Transportation 62.5 64.2 2.6 16.5Food and Drugs 21.3 21.6 1.7 5.6General Consumer Goods 90.3 90.7 0.4 23.3Building and Construction 26.4 26.3 -0.4 6.8Fuel and Service Stations 32.2 31.5 -2.2 8.1Business and Industry 49.8 47.4 -5.0 12.2

Total 384.7 389.3 1.2 100.0Source: The HdL Companies

Taxable receipts data for Los Angeles County show that from the fourth quarter of 2015 to the fourth quarter of 2016,spending increased on Restaurants and Hotels (+5.1%) and Autos and Transportation (+2.6%). On the other hand, tax



receipts from General Consumer Goods, the largest category of consumer spending, increased by a tepid 0.4% yearover year. Meanwhile, Business and Industrial tax revenue was down by 5% year over year, and persistently low oilprices reduced taxable receipts from Fuel and Service Stations by 2.2% year over year.

Contributing to the strong growth in spending on Restaurants and Hotels was growth in tourism (discussed in thenext section). Meanwhile, there are signs that automobile purchases may be hitting a cyclical peak in Los Angelesas well as in the United States. J.D. Power and LMC Automotive forecast a 0.2% increase in automobile sales in 2017versus 2016, while Moody's Investors Service predicted a slight decline.1 Data from California New Car Dealers Asso-ciation indicate that in 2016, new light vehicle registrations, including retail and fleet transactions, were up by 1.6%in California and 1.3% in the U.S. compared to 2015,2 very modest growth compared to 2015, when new registrationswere up by 11.1% in California and 5.2% in the U.S. compared to 2014.3

TourismHotel data suggest that tourism and business travel had a particularly strong year in 2016 in the City of Los Angelesand the rest of the County. From 2015 to 2016, the average annual daily hotel room rate in the City of Los Angelesincreased by 12.5% to $232 a night, with especially strong growth in the San Fernando Valley (16.2%), parts of theDowntown area (13.4%), and West Los Angeles (6.5%). The rate for the balance of the County increased at 8.5% to$228 a night, with some of the strongest growth in the City of Santa Clarita (16.3%), the area around Los AngelesInternational Airport (9.4%), the City of Pasadena (9.1%), and the Marina del Rey neighborhood (8.7%), all of whichare popular tourist areas.Occupancy Rate

L.A. City L.A. County Balance

Year Rate (%) Y-o-Y Change Rate (%) Y-o-Y Change

2006 74.1 - 78.5 -2007 75.2 1.1 78.1 -0.42008 74.4 -0.8 74.3 -3.82009 68.0 -6.4 68.2 -6.12010 69.7 1.7 72.6 4.42011 71.5 1.8 76.0 3.42012 75.6 4.1 78.5 2.52013 77.9 2.3 80.2 1.72014 78.6 0.7 82.5 2.32015 80.0 1.4 82.6 0.12016 82.2 2.2 84.1 1.5Source: CBRE Hotels

Average Daily RateL.A. City L.A. County Balance

Year Rate ($) Y-o-Y Change Rate ($) Y-o-Y Change

2006 154.79 - 161.57 -2007 165.11 6.7 174.00 7.72008 166.79 1.0 180.46 3.72009 146.65 -12.1 156.41 -13.32010 147.90 0.9 158.84 1.62011 165.68 12.0 169.23 6.52012 172.26 4.0 178.24 5.32013 178.85 3.8 186.46 4.62014 194.57 8.8 197.26 5.82015 206.54 6.2 209.65 6.32016 232.44 12.5 227.53 8.5Source: CBRE Hotels

From 2015 to 2016, the annual average hotel occupancy rate increased by 2.2 percentage points in the City of LosAngeles to 82.2%, with strong growth Downtown (2.8 percentage points). In comparison, the annual average hoteloccupancy rate increased by 1.5 percentage points in the balance of the County, with strong growth in the City ofSanta Clarita (5.5 percentage points), the City of West Hollywood (4.2 percentage points), the City of Beverly Hills(3.8 percentage points) and theMarina del Rey neighborhood (3.1 percentage points). The increased occupancy rates

1Carey, N. (2017). “Plateau in U.S. auto sales heightens risk for leaders: Moody’s.” Reuters Business News. March 27, 2017. Retrieved May2, 2017. Available at: http://www.reuters.com/article/us-usa-autos-moody-s-idUSKBN16Y1C0

2California New Car Dealers Association (2017). “California Auto Outlook: Covering Fourth Quarter 2016.” February 2017, vol. 13, no. 1.Retrieved May 2, 2017.

3California New Car Dealers Association (2016). “California Auto Outlook: Covering Fourth Quarter 2015.” February 2017, vol. 12, no. 1.Retrieved May 2, 2017.


http://www.reuters.com/article/us-usa-autos-moody-s-idUSKBN16Y1C0


and increased average daily rate imply higher hotel revenues, which mean higher taxable receipts from hotels, con-tributing to increased taxable sales in the Restaurants and Hotels category.

Occupancy Rate (%), Comparison CitiesCity 2015 2016 Y-o-Y Change

Los Angeles 80.0 82.2 2.2Anaheim 81.2 83.1 1.9Long Beach 77.7 79.0 1.3Riverside/Corona 74.8 76.6 1.8San Diego 82.2 82.9 0.6Source: CBRE Hotels

Average Daily Rate, Comparison CitiesCity 2015 ($) 2016 ($) Y-o-Y Change (%)

Los Angeles 206.54 232.44 12.5Anaheim 176.90 178.38 0.8Long Beach 156.63 166.71 6.4Riverside/Corona 116.01 123.93 6.8San Diego 197.58 201.49 2.0Source: CBRE Hotels

Passenger traffic for Los Angeles International Airport shows that more tourists and business travelers, both domes-tic and foreign, are traveling to the City of Los Angeles each year. In 2016, 58 million domestic passengers traveledthrough LAX, an increase of 8.4% from 2015 and 12.6% from 2014. Compared to other airports in Southern Cali-fornia—Long Beach Airport, Ontario International Airport,4 Orange County’s John Wayne Airport, and San DiegoInternational Airport—LAX showed impressive growth. Long Beach Airport, much smaller than the others, addedmore routes in 2016, resulting in a 13% surge in domestic passengers compared to 2015 and possibly drawing somedomestic traffic away from LAX.5

80

90

100

110

120

Dom

estic

Pas

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& In

dexe

d (J

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3 =

100)

Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Los Angeles Long Beach Orange CountyOntario/Riverside San Diego


Los Angeles & Major So. Cal. International Airports, Jan-13 to Jan-17Domestic Airport Passenger Flows

50

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300

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Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Los Angeles Long Beach Orange CountyOntario/Riverside San Diego


Los Angeles & Major So. Cal. International Airports, Jan-13 to Jan-17International Airport Passenger Flows

In 2016, nearly 23 million international passengers traveled through LAX, an increase of 11.2% from 2015 and 20%from 2014. By comparison, Orange County, the next largest airport, had slightly over 750,000 international pas-sengers, an increase of 7.8% from 2015 and 11.9% from 2014. Note that County data do not separate domestic andinternational passengers traveling to the City of Los Angeles from passengers traveling to other parts of Los AngelesCounty. However, it seems likely, based on the relatively high levels of traffic growth at LAX, that 2016 brought anincrease in travelers to both the City of Los Angeles and the balance of Los Angeles County.

4Although the City of Riverside has its own municipal airport, the Riverside Municipal Airport, no data regarding passenger arrivals wereavailable. In addition, Ontario International Airport is less than 20 miles from Riverside Municipal Airport and is considerably larger, there-fore, Beacon Economics believes that Ontario Airport would be a more appropriate comparison.

5Martin, H. (2016). “Long Beach Airport gets more routes as competition heats up.” August 2016. Los Angeles Times. Retrieved on May 2,2017. Available at: http://www.latimes.com/business/la-fi-travel-briefcase-long-beach-20160806-snap-story.html


http://www.latimes.com/business/la-fi-travel-briefcase-long-beach-20160806-snap-story.html


The Los Angeles tourism boom has increased Amtrak ridership. Ridership out of Union Station in Los Angeles, thebusiest Amtrak station in Southern California and one of the busiest in the United States, grew 2.9% or 45,648 pas-sengers from 2015 to 2016, topping the average increase of all stations in California (2.2%). In comparison, ridershipout of San Diego,6 grew 3.3%. Meanwhile, from 2015 to 2016, ridership grew 4.4% for Anaheim and 5.2% for SantaAna and decreased 4.3% for Riverside. Because many riders travel between the City of Los Angeles and these otherdestinations, it is difficult to draw conclusions about growth in one city relative to growth in others. What is impor-tant, however, is that the increase in ridership at Union Station suggests that tourism and business travel via railremains robust.

Amtrak Ridership, Selected Cities and California, 2014 to 2016City 2014 2015 2016 Change %

Los Angeles 1,551,090 1,589,391 1,635,039 2.9Anaheim 254,066 270,819 282,700 4.4Riverside 12,105 12,837 12,287 -4.3San Diego 896,902 1,011,785 1,044,833 3.3Santa Ana 185,327 182,291 191,716 5.2

California 11,514,763 11,890,454 12,148,179 2.2Source: Amtrak Fact Sheets, FY 2014 - FY 2016Note: Long Beach has no Amtrak stations.

Although tourism had a great year in 2016, some signs point to a possible lukewarm year in 2017. A study by TourismEconomics projects that Los Angeles County could lose $736 million in direct tourism spending,7 in part becausethe uncertainty about the Trump Administration’s efforts to impose a travel ban and the unwelcoming message itis sending to the rest of the world are thought to negatively affect the tourism industry.8 Another possible reasonfor worry is that the U.S. dollar has appreciated considerably, especially against the Canadian dollar, the euro, andthe Chinese yuan. This means purchasing power for foreign visitors has decreased and the U.S. has become a moreexpensive travel destination. Though this may be a worse-case scenario, it is important to bear in mind that Mex-ico remains the single largest source of international visitors in Los Angeles County,9 magnifying the importance ofpolicy discussions regarding topics such as a proposed border wall.

Port ActivityKnown as the busiest ports in the United States and the largest port complex in the Western Hemisphere, the Portof Los Angeles and the Port of Long Beach accounted for more than 40% of exports from California. Despite a strongU.S. dollar, export activities were up in 2016 for both the Port of Los Angeles (+3.1%) and the Port of Long Beach(+4.5%), reversing the disappointing performance in 2015 (motivated in part by labor strikes at the ports). The valueof exports from both ports in 2016 totaled $65.2 billion, a 3.8% increase over 2015. Current data indicate that 2017

6This is the total of San Diego (Santa Fe Depot) and San Diego-Old Town. For Just Santa Fe Depot Station, 2016 ridership totaled 777,352passengers, up 0.5% from 2015.

7Goldman, H. (2017). “Trump travel ban begins to deter foreign tourists fromU.S.” March 2017. Chicago Tribune. Retrieved onMay 2, 2017.Available at: http://www.chicagotribune.com/news/nationworld/ct-trump-travel-ban-deters-tourists-20170306-story.html

8Kirkham, C. (2017). “U.S. Hoteliers Go on Charm Offensive Amid Concerns Over Trump Policies.” March2017. The Wall Street Journal. Retrieved on May 2, 2017. Available at: https://www.wsj.com/articles/u-s-hoteliers-go-on-charm-offensive-amid-concerns-over-trump-policies-1489141802

9“Los Angeles Tourist Statistics 2016.” January 2017. Los Angeles Tourism and Convention Board. Retrieved on May 2, 2017. Available at:http://www.discoverlosangeles.com/tourism/research


http://www.chicagotribune.com/news/nationworld/ct-trump-travel-ban-deters-tourists-20170306-story.html

http://www.chicagotribune.com/news/nationworld/ct-trump-travel-ban-deters-tourists-20170306-story.html

https://www.wsj.com/articles/u-s-hoteliers-go-on-charm-offensive-amid-concerns-over-trump-policies-1489141802

https://www.wsj.com/articles/u-s-hoteliers-go-on-charm-offensive-amid-concerns-over-trump-policies-1489141802

http://www.discoverlosangeles.com/tourism/research


will continue the growth in exports from both ports. As of end of February 2017, year-to-date exports by value wereup by 4.8% for the Port of Los Angeles and 22.4% for the Port of Long Beach, respectively, compared to February 2016.

On the other hand, import activities saw mixed results in 2016. Import activities increased 0.8% for the Port of LosAngeles but decreased 6% for the Port of Long Beach. The total value of imports to both ports in 2016 totaled $296.5billion, a 0.5% decrease compared to 2015 values. Current data imply that 2017 could see further decreases in importactivities. As of end of February 2017, year-to-date imports by value were down by 4.4% for the Port of Los Angelesand 0.3% for the Port of Long Beach, respectively, compared to February 2016 year-to-date exports by value.

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2003 2005 2007 2009 2011 2013 2015year

Port of Los Angeles Port of Long BeachSource: WISERTrade

Ports of Los Angeles and Long Beach, 2003 to 2016Total Trade by Value of Commodities (Imports and Exports)

With an increase in exports by value combined witha slight decrease in imports by value, the Port of LosAngeles and the Port of Long Beach had a combinedtrade deficit of $231.3 billion, a slight improvementfrom 2015’s deficit of $235.2 billion. Concerns per-sist over the largest trading partner with both ports,China. In the first quarter of 2017, the Chinese econ-omy grew 6.9%. Although that exceeded the 6.5%growth target set by the Chinese government, it wasone the slowest since the global financial crisis. Thedrop-off in port activity with China that was presentin 2015 carried over to 2016. Imports from China re-mained unchanged in 2016 compared to 2015, total-ing $163.9 billion in both years. On the other hand,exports to China totaled $16.7 billion in 2016, whichdipped 0.7% from 2015.



Exports by PortPort of Los Angeles Port of Long Beach

Year Exports ($ Bill.) Change (%) Exports ($ Bill.) Change (%)

2003 19.0 -- 14.3 --2004 20.0 5.7 15.2 6.62005 20.7 3.2 19.4 27.82006 26.3 27.0 21.6 11.32007 30.2 15.1 26.7 23.52008 34.8 15.0 31.9 19.52009 28.0 -19.5 24.2 -24.22010 33.7 20.5 31.8 31.32011 43.9 30.1 34.9 9.82012 42.7 -2.6 35.6 2.12013 40.8 -4.5 39.6 11.32014 40.0 -2.0 37.2 -6.22015 31.7 -20.7 31.1 -16.42016 32.7 3.1 32.5 4.5Source: WISERTrade

Imports by PortPort of Los Angeles Port of Long Beach

Year Imports ($ Bill.) Change (%) Imports ($ Bill.) Change (%)

2003 142.3 -- 42.7 --2004 159.7 12.2 48.5 13.62005 169.1 5.9 53.0 9.42006 200.1 18.3 57.7 8.72007 211.2 5.6 60.6 5.12008 210.5 -0.3 60.0 -1.02009 169.2 -19.6 44.4 -26.02010 204.0 20.5 56.7 27.72011 229.9 12.7 59.9 5.62012 241.3 5.0 65.3 9.22013 245.1 1.6 69.8 6.82014 251.5 2.6 67.2 -3.62015 238.9 -5.0 59.1 -12.12016 240.9 0.8 55.6 -6.0Source: WISERTrade

Top 10 Commodity Exports, Port of Los Angeles, 20162015 2016 Change 2016

Commodity ($ billions) ($ billions) (%) Share (%)

Industrial Machinery, Including Computers 4.6 4.1 -10.1 12.6Plastics And Articles 2.6 2.7 5.4 8.3Electric Machinery Etc; Sound Equip; Tv Equip; Pts 1.7 1.8 5.2 5.5Vehicles, Except Railway Or Tramway, And Parts Etc 1.5 1.8 16.3 5.4Edible Fruit & Nuts; Citrus Fruit Or Melon Peel 1.1 1.4 29.5 4.2Optic, Photo Etc, Medic Or Surgical Instrments Etc 1.0 1.2 18.6 3.6Miscellaneous Chemical Products 1.2 1.2 -0.1 3.5Meat And Edible Meat Offal 1.4 1.1 -18.9 3.4Cotton, Including Yarn and Woven Fabric 1.1 1.1 -2.5 3.3Aluminum And Articles 0.8 1.0 37.6 3.2

Total All Commodities 31.7 32.7 3.1 100.0Source: WISERTrade



Top 10 Commodity Exports, Port of Long Beach, 20162015 2016 Change 2016


Industrial Machinery, Including Computers 4.4 3.9 -11.3 12.1Vehicles, Except Railway Or Tramway, And Parts Etc 2.8 3.7 31.7 11.4Plastics And Articles 1.9 2.3 21.2 7.0Electric Machinery Etc; Sound Equip; Tv Equip; Pts 1.5 1.5 -2.9 4.6Aluminum And Articles 0.7 1.5 115.0 4.6Meat And Edible Meat Offal 1.4 1.4 4.8 4.4Edible Fruit & Nuts; Citrus Fruit Or Melon Peel 1.3 1.2 -5.5 3.7Miscellaneous Chemical Products 0.8 1.0 19.9 3.1Optic, Photo Etc, Medic Or Surgical Instrments Etc 0.7 0.9 32.9 2.9Aircraft, Spacecraft, And Parts 0.6 0.9 51.5 2.6

Total All Commodities 31.1 32.5 4.5 100.0Source: WISERTrade

Top 10 Trade Partners (Exports), Port of Los Angeles, 20162015 2016 Change 2016


China 7.8 7.7 -0.9 23.7Japan 6.3 6.7 6.0 20.4Republic of Korea 4.2 3.9 -6.3 11.9Hong Kong 1.4 1.8 29.7 5.6Taiwan 1.9 1.8 -6.8 5.5Vietnam 0.9 1.3 46.3 3.9Thailand 0.8 1.1 39.5 3.5Singapore 1.4 0.9 -36.2 2.7Indonesia 0.6 0.6 5.6 1.9Malaysia 0.6 0.5 -6.5 1.6

Total All Partner Countries 31.7 32.7 3.1 100.0Source: WISERTrade

Top 10 Trade Partners (Exports), Port of Long Beach, 20162015 2016 Change 2016


China 9.0 9.0 -0.6 27.6Australia 3.9 4.3 12.0 13.3Republic of Korea 3.1 3.1 -1.0 9.6Taiwan 2.4 2.5 2.6 7.7Japan 2.5 2.4 -4.0 7.3Hong Kong 1.8 1.9 4.2 5.8Vietnam 0.8 1.8 127.6 5.7Singapore 1.0 1.1 5.0 3.4Philippines 0.7 0.7 5.1 2.1New Zealand 0.6 0.6 14.1 2.0

Total All Partner Countries 31.1 32.5 4.5 100.0Source: WISERTrade



Residential Real EstateHomebuyer’s MarketMedian prices for existing single-family homes in the City of Los Angeles continued their upward trajectory throughthe end of 2016. This price appreciation is the result of strong homebuyer demand fueled by a population of house-holds with increased spending capacity, low mortgage rates, limited inventory, and a recovery defined by subparconstruction activity.

225

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Source: DataQuick

City of Los Angeles, 2006 to 2016Residential Property Assessed Valuation

At the beginning of the economic recovery, therewas a glut of distressed properties on the market,and because these properties were sold at a discount,median prices dropped sharply. As the momentumof the economic expansion increased, the volume ofdistressed properties on themarket diminished. TheCity of Los Angeles had 968 foreclosures in 2016, anearly 87% decline from foreclosures in 2011. Mostof Southern California has followed a similar trend,and with fewer distressed properties on the market,there has been substantial price appreciation for ex-isting single-family homes in the City of Los Angeles.

Medianprices for existing single-family homes in theCity of Los Angeles reached $641,000 at the end of2016, an 8.5% year-over-year increase. From the end of 2011 to the end of 2016, median prices in the City grew by80.1%. This increase in prices and the lack of supply have led to stagnant sales. Over the five-year period ending in2016, sales of existing single-family homes increased by only 4.7% in the City of Los Angeles and have yet to reachpre-recession levels.

The housing market in the balance of Los Angeles County has followed a similar trend, as the median price for exist-ing single-family homes increased by 7.4% from the fourth quarter of 2015 to the fourth quarter of 2016. The five-yeargrowth rate was 71.0%, and the median price for an existing single-family home in the balance of the County wasabout $567,600 as of the fourth quarter of 2016. Despite that lower median price relative to the City, the balance ofthe County saw just a 0.2% increase in home sales during the last year. Although trends in the balance of the Countyand in other cities in Southern California are similar, homes outside the City of Los Angeles remain relatively moreaffordable.



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City of Los Angeles, Q4-06 to Q4-16Median Price for Existing Single-Family Homes

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City of Los Angeles, Q4-06 to Q4-16Existing Single-Family Home Sales

The City of Los Angeles has seen its median home prices increase more rapidly than prices in other major cities inSouthern California over a five-year period. As a result, the City of Los Angeles has the highest median price forexisting single-family homes among select cities in Southern California. In the fourth quarter of 2011, the medianprice for a home in the City of San Diegowas $393,000, while themedian price in Los Angeles was $355,900. At the endof 2016, the Los Angeles median price is nearly $40,000 higher than the San Diego median price: roughly $603,500 inthe fourth quarter of 2016. Unlike Los Angeles, San Diego has had significant growth (20.2%) in existing single-familyhome sales over a five-year period, suggesting that over five years, the San Diego housing market has not been astight as markets in other Southern California cities. This may be changing, given that home sales decreased 1.5% inSan Diego from the fourth quarter of 2015 to the fourth quarter of 2016.

Existing Single-Family Home Market Comparisons, 2016Annual Sales Median Price5-Year 1-Year Price 5-Year 1-Year

City Sales Growth (%) Growth (%) ($000s) Growth (%) Growth (%)

Anaheim 1,951 12.3 5.5 542.9 52.7 7.4Long Beach 2,548 13.1 0.8 547.0 60.3 7.0Riverside 4,049 -6.9 3.1 343.9 78.0 8.8San Diego 8,489 20.2 -1.5 603.5 53.3 7.1Santa Ana 1,403 -8.5 2.2 538.0 66.0 9.8

City of L.A. 17,051 4.7 -1.3 641.0 80.1 8.5L.A. County Balance 38,906 4.6 0.2 567.6 71.0 7.4Source: DataQuick

Distressed Property Indicator Comparisons, 2016Defaults Foreclosures5-Year 1-Year 5-Year 1-Year

City Defaults Growth (%) Growth (%) Foreclosures Growth (%) Growth (%)

Anaheim 356 -79.5 -15.6 75 -90.8 -21.9Long Beach 522 -76.9 -7.4 143 -87.9 3.6Riverside 738 -80.4 -18.1 246 -89.1 -15.5San Diego 1,308 -80.2 -13.6 333 -90.6 -31.1Santa Ana 348 -76.8 0.0 62 -92.0 -29.5

City of L.A. 3,751 -75.9 -10.6 968 -86.6 -16.6L.A. County Balance 8,416 -76.6 -9.8 2,227 -87.9 -20.7Source: DataQuick



Rental MarketHouseholds face significant barriers in the housing market throughout most of Southern California. Subsequently,potential buyers across the City of Los Angeles have turned to the rental market.

The average monthly apartment rent in the City of Los Angeles reached $1,833 in the fourth quarter of 2016. Theaverage monthly rent has been increasing since 2011, a reflection of sustained high demand. Average apartmentmonthly rents in the rest of Los Angeles County have also been increasing but remain more affordable with an av-erage monthly rent of $1,660. The trend of falling vacancies since 2010 further demonstrates the strength of rentaldemand in the City. Both the City of Los Angeles and the balance of the County have had vacancy rates below 4.0%since the beginning of 2012. As of the fourth quarter of 2016, the vacancy rates for the City and the balance of theCounty were 3.5% and 3.1%, respectively.

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Source: REIS

City of Los Angeles, Q1-09 to Q4-16Average Apartment Rent

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5.5

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e (%

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Source: REIS

City of Los Angeles, Q1-09 to Q4-16Apartment Vacancy Rate

The tight housing market has adversely affected the apartment market. Households that are unable to buy a homeare saturating an already high-demand and supply-constrained rental market. Rents are significantly more afford-able outside of Los Angeles County, but rents in other Southern California cities are climbing.

Apartment Market Comparisons, 2016Cost of Rent Vacancy Rate

Annual 1-YearCity $/month Growth (%) % Change (p.p.)

Anaheim 1,489 2.4 3.0 0.8Long Beach 1,648 8.0 4.3 0.9Riverside 1,216 6.5 2.4 -0.1San Diego 1,833 3.2 4.0 0.0Santa Ana 1,613 1.9 2.4 0.1

City of L.A. 1,823 6.4 3.5 0.3L.A. County Balance 1,660 5.8 3.1 -0.1Source: REIS

The City of Long Beach’s average apartment rentshad the fastest year-over-year growth rate (8.0%)from the end of 2015 to the end of 2016. Overall, SanDiego had the highest average apartment rent com-pared to the Cities of Anaheim, Long Beach, Los An-geles, Riverside, and Santa Ana. The most affordablelocation as of the fourth quarter of 2016 was River-side, and its affordability is enticing many house-holds from Greater Los Angeles to move there, espe-cially those households on the lower end of the in-come spectrum.

Because many potential homebuyers have had toshift into the rental market, average rents are in-creasing to unaffordable levels in many of the most populous cities in Southern California. In the aftermath of



the recession, developers have been cautious and construction activity has been modest. However, as the economystrengthens, the low inventory of homes for sale and low vacancy rates have created investment opportunities fordevelopers.

Residential ConstructionDevelopers in the City of Los Angeles recognize that a low supply of housing along with strong demand provides anexceptional investment opportunity. In particular, builders are choosing to develop multi-family housing projectsbecause they tend to offer higher returns on investment. This is goodnews for the City of Los Angeles, which faces sig-nificant land constraints and thus will benefit most from infill multi-family developments. In 2016, there were 13,161multi-family housing unit permits issued, a 4.7% decrease from 2015. Despite this slowdown, permits formulti-familyunits have increased by 120% from 2011 to 2016. The balance of the County has followed a similar trend, growing by84.8% over the same five years. Still, the City accounted for nearly 77% of all multi-family unit permits issued in theCounty of Los Angeles. Furthermore, single-family unit permits seem to be returning to their pre-recession level inthe City of Los Angeles. From 2011 to 2016, there was a 257.1% increase in single-family housing permits issued inthe City. The balance of the County grew at 50.9% during the same period and has not reached pre-recession levels.

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Source: CIRB

City of Los Angeles, Q1-07 to Q1-17Single-Family Housing Permits

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Source: CIRB

City of Los Angeles, Q1-07 to Q1-17Multi-Family Housing Permits

Los Angeles-area residents are embracing the shift toward denser multi-family housing projects. This is evident bythe overwhelming defeat of Measure S, the City of Los Angeles measure that sought to restrict the constructionof properties requiring zone changes or General Plan Amendments (such as loosening height restrictions). Othernearby cities are also demonstrating similar sentiments; in fact, voters in the City of Santa Monica opposed MeasureLV, a measure that would have disrupted construction of apartment towers (taller than three stories) by requir-ing a citywide vote for every project meeting the criteria. These housing measures would have been detrimental tothe housing markets of each respective city, since these stringent requirements would have hampered constructionactivity and thus contributed toward tightening the supply of multi-family housing.

Although the City of Los Angeles seems to be embracing a shift from single-family housing to denser multi-familyhousing, other Southern California cities are following different trends. Long Beach has seen a decline in the numberof housing units permitted over the last five years, for both single-family and multi-family properties. Conversely,Anaheim is enjoying a residential construction boom, with high five-year growth rates in both single-family units(400%) and multi-family unit permitting (901%). Riverside has seen a nearly 388% increase in single-family housingconstruction from 2011 to 2016, even as multi-family housing permitting in Riverside increased only 7.6% from 2011



to 2016. Santa Ana also has seen an increase in construction of single-family housing and a decline in multi-familyunit permitting. Single-family unit permits in San Diego declined by 84.4% from 2015 to 2016, but multi-family hous-ing unit permits increased by 11.7% over the last year and 165% from 2011 to 2016.

Residential Housing Construction Comparisons, 2016Single-Family Multi-Family5-Year 1-Year 5-Year 1-Year

City Units Growth (%) Growth (%) Units Growth (%) Growth (%)

Anaheim 135 400.0 285.7 1,201 900.8 21.9Long Beach 20 -69.7 0.0 98 -57.8 -25.8Riverside 210 388.4 13.5 254 7.6 13.4San Diego 861 84.4 -34.1 5,692 165.0 11.7Santa Ana 136 223.8 403.7 70 -44.0 -84.0

City of L.A. 1,896 257.1 3.1 13,161 120.3 -4.7L.A. County Balance 2,775 50.9 12.9 3,925 84.8 -18.8Source: CIRB

Overall, the City of Los Angeles has seen a significant increase in residential construction, which is crucial in help-ing to ameliorate its housing problems. The defeat of anti-development initiatives such as Measure S and MeasureLV means that this trend is likely to continue as developers attempt to benefit from excess demand. Nevertheless,increasing rents and low vacancy rates suggest that much more needs to be done.

Commercial Real Estate

Sustained business growth and foreign investments have been a boon for commercial real estate in the City of LosAngeles in recent years. Rising commercial real estate values in the City continued to attract strong developer inter-est, and permitting levels in the City picked up in 2016. Nonresidential construction permits valued at $2.4 billionwere filed during the year, a 0.8% increase in permit valuations from the prior year. Although this increase is mod-est, growth in the City was in marked contrast to nonresidential permitting activity in the rest of the County of LosAngeles, which fell by 9.8% during the year.

Along with the surrounding County, the City has seen a drop in new commercial projects, but it has been balancedby a strong increase in nonresidential permitting for alterations and additions to existing buildings. Renovationshave been at historically high levels in the City, a trend that has been broadly attributed to the Adaptive Reuse Or-dinance10 passed in 1999. In 2016, the annual value of nonresidential alteration permits filed in the City rose 27.4%to $1.6 billion, representing 65% of nonresidential investment in the City of Los Angeles.

Office

Traditionally office-based sectors (Professional and Business, Financial Activities, etc.) are among the most concen-trated industries in the City. As employment in these sectors has continued to grow, so has demand for office space,even though office rents are higher in the City than in the rest of the County. In the fourth quarter of 2016, officeproperties in the City rented for 18.3% more than office properties in the balance of the County. This gap appears tobewidening thanks to stronger annual rental rate appreciation in the City (+2.5%more year over year than elsewherein the County (+1.1% more year over year), up from a 16.7% differential in the fourth quarter of 2015.

10The Adaptive Reuse Ordinance establishes an expedited approval process to convert historic and under-utilized buildings into new hous-ing units.



Office Permit Values ($ 000s), 20162016 1-Yr. Chg. 1-Yr. Chg.

Location ($ 000s) ($ 000s) (%)

City of L.A. 177,423 -3,810 -2.1L.A. County Balance 167,871 2,074 1.3

Riverside 770 770Santa Ana 1,215 675 124.9Anaheim 2,907 2,907Long Beach 23,417 18,291 356.9San Diego 37,239 -43,478 -53.9Source: CIRB

The declining affordability of office space in the City may be contributing to the surge of new and existing firmsthat have signed leases elsewhere in the County over the last year. Vacancy rates in the balance of the County tight-ened at a faster rate than in the City, posting a 2.7 percentage point decline between the fourth quarter of 2015 andthe fourth quarter of 2016. This occurred despite a strong influx of new stock onto the market during that time asthe balance of the County added 17.3 million square feet of office space between the fourth quarter of 2015 and thefourth quarter of 2016. This is compared to a 0.7 percentage point drop in the City, which added 500,000 square feetduring that time. More office space can be expected as the aggregate value of new office permits was estimated at$177.4 million in 2016. However, permitting levels were trending 2.1% lower than in 2015, when permits in the officecategory hit a post-recession high.

Retail

Retail Permit Values ($ 000s), 20162016 1-Yr. Chg. 1-Yr. Chg.

Location ($ 000s) ($ 000s) (%)

City of L.A. 259,986 4,024 1.6L.A. County Balance 281,403 65,671 30.4

Santa Ana 538 -77 -12.5Long Beach 790 -15,695 -95.2Riverside 16,952 -1,436 -7.8San Diego 45,822 -98,661 -68.3Anaheim 192,887 155,782 419.8Source: CIRB

Although the City of Los Angeles is home to numerous shoppingcenters with some of the highest revenues per square foot in thenation, the City has not been immune to recent shifts in con-sumer trends. According toMoody’s Investors Service, the num-ber of distressed U.S. retailers has tripled since the Great Reces-sion.11 As consumers turn to online alternatives, general con-sumer goods sales at brick-and-mortar stores have been lacklus-ter. Some local ramifications have included weak employmentgrowth in the retail sector and a small increase in vacancy ratesat commercial retail properties. Between the fourth quarter of2015 and the fourth quarter of 2016, the average vacancy rateincreased by 0.6 percentage points to 5.2%.

Still, the retail market in the City of Los Angeles remains strong overall compared to othermajor Southern Californiacities, and incomes and strong population growth make it a promising market for retailers. The average retail prop-erty in the City carries a rental rate premium of 28% over the rest of the County and is substantially pricier than inany other major Southern California city. Appreciation is accelerating at a faster rate in the City of Los Angeles than

11O'Shea, C and Hofferber, J. (2017). “Moody's: Number of distressed US retailers triples since the Great Recession; debt levels up.” Moody'sInvestors Service. February 27, 2017. Retrieved May 3, 2017.



in the balance of the County. The City’s year-to-year rental rate appreciation of 2.2% between the fourth quarter of2015 and the fourth quarter of 2016 outpaced the 1.7% rate seen in the balance of the County.

Meanwhile, new construction projects represent changing preferences in retail real estate. Increasingly, retail prop-erties are adding entertainment and dining options as well as open space for events like concerts and farmer’s mar-kets. Westfield Corp.’s proposed replacement of the Promenade Mall in Woodland Hills with a sprawling mixed-usedevelopment is one indication of what future retail spaces could look like. As developers race to capture a changingconsumer demographic, the valuation of all retail permits filed in the rest of the County increased by 30.4% in 2016.The City saw a smaller increase, 1.6%, but permits in the retail category accounted for more planned spending thanfor any other commercial category that year.

Warehouse/Distribution

Industrial Permit Values ($ 000s), 20162016 1-Yr. Chg. 1-Yr. Chg.

Location ($ 000s) ($ 000s) (%)

City of L.A. 1,400 900 180.0L.A. County Balance 152,369 67,401 79.3

Santa Ana 0 -750 -100.0San Diego 2,897 2,897Riverside 3,944 2,524 177.9Anaheim 8,800 8,800Long Beach 41,927 31,840 315.7Source: CIRB

Another effect of changing consumer patterns is a greater needfor storage space along distribution networks. The City of LosAngeles’ proximity to the Ports of Los Angeles and Long Beachhas made it an important node along these distribution chains.However well placed the City is, though, limited space and his-torically high land costs have been an obstacle to development.This has been pushing investment in new industrial space out ofthe City, and in 2016, industrial projects that obtained approvalin the City were valued at $1.4 million, compared to $152.4 mil-lion in the balance of the County.

Constrained addition of new stock in recent years has placed theCity among the tightest warehouse and distributionmarkets in the region, with a vacancy rate of 5.7% as of the fourthquarter of 2016. By contrast, the rest of the County added close to one million square feet of warehouse space overthe last year, even though average rents increased 3.1% from the fourth quarter of 2015 to the fourth quarter of2016. By comparison, the average rents in the City increased by 2.6% year to year.

Flex/Research and Development

Most of Los Angeles County’s flex/R&D space remains concentrated nearmajor research universities and technologyclusters in Central Los Angeles and the South Bay. Average rental rates rose 1.8% over the last year in the City ofLos Angeles, reaching an average asking rate of $13.95 per square foot in the fourth quarter of 2016. This makes theaverage flex/R&D property within the City 32.6% more costly to rent than in the remainder of the County, wherethe average flex/R&D property is leased at a rate of $10.52 per square foot. However, this price differential has beendecreasing, thanks to stronger acceleration of asking rates in the rest of the County over the last year. The averagerental rate increased by 2.1% between the fourth quarter of 2015 and the fourth quarter of 2016 in the County.

As in the case of warehouse and distribution properties, the flex/R&Dmarkets have seen very constrained supply inrecent years. Approximately 106,000 square feet of space has been added to City stock since the start of the decade,a 0.8% increase. As net absorption fell over the last yearlong period, however, vacancy rates inched upward by 0.2percentage points in the City of Los Angeles. On the other hand, vacancy rates continued to tighten in the balanceof the County and reached a six-year low of 2.7% in the fourth quarter of 2016.



Vacancy Rates for Commercial Property (%), Q1-16Location R&D Office Retail Warehouse

City of L.A. 4.1 14.7 4.7 5.7L.A. County Balance 2.7 14.0 7.1 5.9

Anaheim 1.3 26.0 6.7 7.6Long Beach 2.7 15.1 6.3 6.6Riverside N/A 21.9 6.5 N/ASan Diego 5.6 17.4 6.6 4.9Santa Ana 3.0 14.5 6.7 4.6Note: Location determined by geographic descriptions.Source: REIS

Rental Rates for Commercial Property ($), Q1-16Location R&D Office Retail Warehouse

City of L.A. 13.79 39.13 37.07 6.90L.A. County Balance 10.36 34.09 28.94 6.30

Anaheim 9.12 26.22 27.85 6.01Long Beach 11.15 28.74 30.67 7.18Riverside N/A 22.91 21.73 N/ASan Diego 12.41 31.92 26.11 9.48Santa Ana 9.80 25.70 27.85 7.13Note: Location determined by geographic descriptions.Source: REIS

Nonresidential Permit Values ($ 000s), 20162016 1-Yr. Chg. 1-Yr. Chg.

Location ($ 000s) ($ 000s) (%)

City of L.A. 2,423,246 19,138 0.8L.A. County Balance 2,426,145 -262,495 -9.8

Santa Ana 82,261 31,331 61.5Riverside 126,420 30,478 31.8Long Beach 190,448 59,715 45.7Anaheim 457,678 260,104 131.6San Diego 1,151,936 -140,893 -10.9Source: CIRB

0.0

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2007 2009 2011 2013 2015



City of Los Angeles and County Balance, 2007 to 2016Nonresidential Alteration Permits

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City of Los Angeles and County Balance, 2007 to 2016New Commercial Permits



DemographicsPopulation

100

105

110

115

120

Inde

x =

100

in 1

990

1990 1995 2000 2005 2010 2015

L.A. City L.A. County BalanceSource: California Department of Finance

City of Los Angeles and Los Angeles County Balance, 1990 to 2017Population GrowthSustained population growth in Los Angeles County

is a testament to the strength of the local econ-omy. Based onCalifornia Department of Finance esti-mates, 10.2million people resided in the county as ofJanuary 2016, representing a net population gain of43,758 from the prior year. The City of Los Angeleshas been a disproportionate contributor to popula-tion growth and has accounted for more than one intwo residents added since 2010. It has outpaced therest of the County with a growth rate of 6.3% duringthat time compared to 3.1% growth in the rest of theCounty.

Population gains have been primarily fueled bystrong rates of natural increase and overseas migra-tion. However, more domestic residents have been leaving than entering the County for years. Based on 2015 Censusdata, half of the 377,500 people estimated to have left the County over the last year remained in the state.Mostmovedto other counties in Southern California where costs of living are lower; net migration flows were the strongest tothe Counties of San Bernardino (+22,100) and Riverside (+9,700). Popular out-of-state destinations included ClarkCounty, Nevada (+14,400) and Maricopa County, Arizona (+6,700).

Age Distribution (% of population), 2015Age Cohort

Location Total Under 10 10 to 19 20 to 29 30 to 39 40 to 49 50 to 59 60 to 69 70 to 79 80 and Over

City of L.A. 3,971,896 12.1 12.2 17.4 15.7 14.0 12.1 8.8 4.6 3.1L.A. County Balance 6,198,396 12.6 13.2 14.6 13.6 13.7 13.6 9.9 5.4 3.4

San Diego 1,394,907 12.1 11.1 19.0 16.1 12.5 12.2 9.3 4.4 3.2Long Beach 474,172 13.3 12.6 15.7 16.1 13.1 13.0 9.3 4.3 2.5Anaheim 350,738 14.0 13.3 17.2 14.7 14.6 11.7 7.3 4.1 2.9Santa Ana 335,423 16.2 15.2 17.2 15.4 12.8 11.0 6.7 3.5 2.1Riverside 322,423 13.8 14.3 19.5 14.5 12.0 11.3 7.9 4.4 2.3Source: American Community Survey

MigrationNet domestic outmigration increased over the last year, resulting in domestic losses of 71,730 County residents. Thisis well below levels seen in the 2000s, however, when annual average net outmigration was 112,600. Much of out-bound migration is probably fueled by high costs of living relative to wages; the Census Bureau’s 2015 AmericanCommunity Survey data indicates that County median rents amounted to 35.2% of median household incomes. Thistrend is not unique to Los Angeles County, as high costs of living in job centers across the state have been fuelingmigration to states with cheaper costs of living, according to the Sacramento Bee.12

Notably, Hispanic immigrants have generally made up a decreasing share of foreign immigration over the currentexpansion. American Community Survey data indicate that in 2015, Asians (41.2%), Whites (26.1%) and Hispanics

12Reese, P. (2017). “California exports its poor to Texas, otehr states, while wealthier people move in.” Sacramento Bee. March 5, 2017.Retrieved May 4, 2017. Available at: http://www.sacbee.com/news/state/california/article136478098.html


http://www.sacbee.com/news/state/california/article136478098.html


(23.8%) made up almost all foreign immigration to the County. Although Hispanics made up close to half of Los An-geles County residents in 2015, recent trends could mean that their representation in the County could shift in yearsto come.

The ethnic make-up in the City of Los Angeles more or less mirrors the rest of the County, with Hispanic residentsleading in population count, followed at a distance by the White population. This is not unusual for Southern Cal-ifornia; except in San Diego, Hispanics made up the largest ethnic group in every city examined. The City of LosAngeles has a lower representation of Hispanics than the Cities of Santa Ana, Anaheim, and Riverside. The largestapparent disparity between the ethnic break-out in the City of Los Angeles and the rest of Los Angeles County liesin the representation of the Asian population. They make up 15.6% of residents outside of the City and 11.4% withinCity boundaries. At 8.8%, Black residents are also more strongly represented within the City of Los Angeles than inthe balance of the County, as they are in every major Southern California city except Long Beach.

EducationCity residents also show greater educational polarization than residents in the balance of the County. Residents withless than a high school diploma or with a bachelor's or higher degree are better represented in the City than the bal-ance of the County. It follows that residents with educational attainment levels between these two extremes are lessrepresented in the City (21.6%) than in the rest of the County (24.5%). The representation of City residents at bothends of the spectrum is high, even compared to other large cities in Southern California. The only comparison citywith a higher representation of residents with less than a high school diploma was Santa Ana, where 28.5% of work-ing residents over the age of 25 had not completed high school in 2015. Only San Diego had a higher representationof residents with a bachelor’s or higher degree than residents of the County of Los Angeles.

Educational Attainment (% of population), 2015Education Level

Less than Some High School Some Associates Bachelors AdvancedLocation Total High School High School Diploma College Degree Degree Degree

City of L.A. 2,615,382 14.7 9.8 19.6 18.0 5.9 21.2 10.8L.A. County Balance 4,037,792 12.4 9.2 21.4 20.4 7.5 18.9 10.3

San Diego 908,624 6.7 6.0 16.2 20.8 7.3 25.6 17.4Long Beach 303,981 11.9 8.7 18.7 23.3 8.2 18.8 10.4Anaheim 220,383 13.5 10.7 23.3 21.5 6.3 17.7 7.0Santa Ana 196,555 28.5 16.7 22.7 15.7 4.8 8.3 3.3Riverside 188,559 10.6 10.9 24.9 24.0 7.4 13.1 9.1Source: American Community Survey

Differences in educational attainment rates are a reflection of slightly higher levels of employment opportunitiesat opposite ends of the educational spectrum in the City of Los Angeles. In terms of location quotients comparingoccupational concentration in the City relative to the balance of the County, certain careers are more prevalentamong City residents than County residents, notably life, physical, and social science occupations; food service andpreparation occupations; and arts and entertainment occupations.



Racial/Ethnic Identity (% of population), 2015Location Total White Black Native Am. Asian Pac. Isl. Two or more Hispanic

City of L.A. 3,900,794 28.4 8.8 0.2 11.4 0.2 2.1 48.7L.A. County Balance 6,137,594 26.0 7.5 0.2 15.6 0.3 2.2 48.0

San Diego 135,9791 43.2 6.2 0.3 16.5 0.4 3.3 30.1Long Beach 470,237 28.1 12.5 0.3 12.7 0.9 3.2 42.0Anaheim 345,578 26.7 2.2 0.1 15.8 0.4 1.7 53.1Santa Ana 333,268 9.2 1.0 0.1 10.6 0.2 0.6 78.2Riverside 316,335 31.8 5.5 0.5 7.0 0.3 2.9 51.8Source: American Community Survey

HouseholdAlthough birth rates have been driving growth in the County as a whole, skyrocketing costs of housing and limitedspace present more obstacles to family formation in the City than outside of it. Consequently, the City of Los Angeleshas a relatively low mean household size compared to the County as a whole, regardless of whether the householdowns or rents the home. In 2015, the average household in the City consisted of 2.86 people, compared to 3.04 for theentire county. This has also resulted in a slightly lower proportion of people under the age of 20 in the City (24.3%),compared to the rest of the County (25.8%). Only the City of San Diego had a lower proportion of youth, at 23.2% ofthe population.

On the other hand, age cohort representation in the City surges in young adulthood. People aged 20 to 29 have higherinbound migration flows to the City and County of Los Angeles than any other age cohort, because of the wealth ofcareer and higher educational opportunities in the area. However, age representation in the City of Los Angeles de-clines as people move toward middle age, reflecting again on the challenges of starting a family in the area. Basedon American Community Survey data, households in the City of Los Angeles reported nonfamily status at a muchhigher rate than in the County as a whole: 40% compared to 28%. This trend is apparent in other Southern Californiajob centers, including the Cities of San Diego and Long Beach. Conversely, the Cities of Anaheim and Santa Ana, bothconsidered bedroom communities, had the lowest proportion of nonfamily households of major Southern Californiacities included in this analysis.



About Beacon EconomicsBeacon Economics, LLC is a leading provider of economic research, forecasting, industry analysis, and data services.By delivering independent, rigorous analysis we give our clients the knowledge they need tomake the right strategicdecisions about investment, growth, revenue, and policy. Learn more at www.BeaconEcon.com.

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