A Comparative Analysis

City of Los Angeles: A Comparative Analysis

June 2017 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 Economics

Christopher Thornberg Robert Kleinhenz Founding Partner Executive Director of Research 5777 West Century Boulevard, Suite 895 5777 West Century Boulevard, Suite 895 Los Angeles, California 90045 Los Angeles, California 90045 310.571.3399 424.646.4652 [email protected] [email protected]

Bryan Castro Hoyu Chong Clarissa Paik Research Associate Research Associate Research Analyst [email protected] [email protected] [email protected]

For further information about this publication please contact:

Victoria Pike Bond Rick Smith Director of Communications Director of Business Development Beacon Economics, LLC Beacon Economics, LLC 415.457.6030 858.997.1834 [email protected] [email protected]

Or visit our website at www.BeaconEcon.com.

Contents

Overview 1 Highlights 2 Employment 5 Business Activity 7 Residential Real Estate 16 Commercial Real Estate 20 Demographics 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 growth will 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 continues 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 concerns over China and weak global demand, the economy keeps moving forward. Many local industries are expanding their job bases. Trade through the ports has picked up compared to the previous year. Even so, there are concerns about the types of job gains, especially middle-wage jobs, and the adequacy of the wage increases that accompany these jobs.

Los Angeles has set a tourism record for the sixth year in a row. Both hotel daily rates and average occupancy rates have increased. Downtown is a huge new center of social activity, restaurants are booming across the City, and the hotels are busy. Los Angeles offers some of the world's greatest attractions, and for this reason the City is one of the two 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, due in large part to the improved state of household finances and historically low interest rates. Many households have turned 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 persistent problem: Housing prices have escalated faster than incomes, resulting in a heavier housing cost burden for many Angelenos. 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 City will continue to face major obstacles - from within and from the current federal administration - to maintain its prosperity. However, the outlook is highly positive going forward.

City of Los Angeles: A Comparative Analysis 1 Beacon Economics Comparative Analysis

Highlights County and City Total Private Employment Los Angeles, Q1-08 to Q2-16 Employment 2.4 1.4 Wages in the City of Los Angeles grew at a rate

of 4%, double the rate of growth for the rest of 2.2 the County. As the economic recovery continues, 1.3 wages are increasing across most industries. City Employment (Millions) City Employment 2.0 1.2 Q1-08 Q1-10 Q1-12 Q1-14 Q1-16 Total private employment in the City of Los Ange- (Millions) Employment Balance County LA County Balance LA City les grew 1.4% from the second quarter of 2015 to Source: California Employment Development Department,QCEW the second quarter of 2016.

Business Activity

With the unemployment rate on the decline, busi- nesses are hiring and consumers continue to Taxable Sales City of Los Angeles and Los Angeles County, Q1-00 to Q4-16 spend more of their incomes in the local economy. 28 12

Taxable sales have grown 39.1% since reaching a 26 11 low in the second quarter of 2009. 24 10

22 9 Taxable sales for the City of Los Angeles increased by 4.4% from the fourth quarter of 2015 to the 20 8 18 7

fourth quarter of 2016, outperforming other ma- City Taxable SA) ($ Billions, Sales

County County Taxable SA) ($ Billions, Sales Q1-00 Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Q1-12 Q1-14 Q1-16 jor cities in Southern California such as the City of Los Angeles County Balance Los Angeles City Long Beach (+0.7%), the City of Riverside (+3.1%), Source: California Board of Equalization the City of Santa Ana (+2.2%), and the City of Ana- heim (-0.7%).

Tourism

Los Angeles Airport Passenger Flows Through its attractions, experiences, and cul- 2007 to 2016 tures, Los Angeles continues to be a destination of 80 choice for tourists. In 2016, nearly 23 million international passengers traveled through LAX, an 60

increase of 11.2% from 2015, along with the 58 mil- 40 lion domestic passengers also traveling through

LAX, up 8.4% from 2015. of Passengers Millions 20

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Known not only as the largest railroad passenger Domestic International terminal in the Western United States, Los An- Source: Visit California geles' Union Station is the busiest California Am- trak station with 1.64 million riders in 2016, a 2.9% growth compared to 1.59 million riders in 2015.

City of Los Angeles: A Comparative Analysis 2 Beacon Economics Comparative Analysis

Commercial Real Estate New Commercial Permits City of Los Angeles and County Balance, 2007 to 2016 Strong business activity and foreign investment 2.0

have led to growth in commercial real estate in 1.5 the City of Los Angeles in recent years. Renova- tions of older buildings has driven commercial de- 1.0 velopment in the City of Los Angeles since the pas- 0.5

sage of the Adaptive Reuse Ordinance in 1999. In Permit Values ($ Billions) 2016, nonresidential alteration permit values filed 0.0 2007 2009 2011 2013 2015

in the City rose 27.4% to $1.6 billion, representing L.A. County Balance L.A. City 65% of all nonresidential investment overall. Source: California Homebuilding Foundation

Vacancy rates fell 0.7% between the fourth quarter of 2015 and the fourth quarter of 2016 for office properties in the City, compared to a 2.7% decline in the County Balance.

Residential Real Estate Median Price for Existing Single-Family Homes City of Los Angeles, Q4-06 to Q4-16 The median price for existing single-family homes 650

has increased significantly in the City of Los Ange- 550 les, just as it has for other cities in Southern Cali- fornia. The L.A. Median grew by 8.5% from 2015 to 450

2016 reaching $641,000, while the County balance 350

median grew by 7.4% over the same time period. SA) ($000s, Price Median 250 Due to strong homebuyer demand and low supply Q4-06 Q4-08 Q4-10 Q4-12 Q4-14 Q4-16 L.A. County Balance City of L.A. of homes, many potential homebuyers are reluc- Source: DataQuick tantly shifting to the rental market. The average monthly apartment rent in the City of Los Angeles reached $1,833 in the fourth quarter of 2016.

Demographics

Despite high costs of housing, the City of Los An- Population Growth geles has remained an attractive labor market City of Los Angeles and Los Angeles County Balance, 1990 to 2017 120 for young adults aged 20 to 29 years, who com- prise the largest cohorts by age, and constitute the 115 largest share of migrants to the County. 110 The City of Los Angeles has been a disproportion- Index = 100 in 1990 in = Index 100 105 ate contributor to population growth and has accounted for more than one in two residents added 100 1990 1995 2000 2005 2010 2015 since 2010. It has outpaced the rest of the County L.A. City L.A. County Balance with a growth rate of 6.3% during that time, com- Source: California Department of Finance pared to 3.1% in the rest of the County.

City of Los Angeles: A Comparative Analysis 3 Beacon Economics Comparative Analysis

Port Activity Total Trade by Value of Commodities (Imports and Exports) Ports of Los Angeles and Long Beach, 2003 to 2016 Despite a strong U.S. dollar, export activities were 300 up in 2016 for both the Port of Los Angeles (+3.1%) 250

and the Port of Long Beach (+4.5%), reversing the 200

disappointing performance in 2015 motivated in 150 part by labor strikes at the ports. Total Value, $ Billions 100

50 2003 2005 2007 2009 2011 2013 2015 The total value of imports to both ports in 2016 to- year taled $296.5 billion, a 0.5% decrease compared to Port of Los Angeles Port of Long Beach 2015 values. Source: WISERTrade

The drop-off in port activity with China that was present in 2015 carried over to 2016. While the value of imports from China remained unchanged, exports to China fell 0.7% from 2015.

City of Los Angeles: A Comparative Analysis 4 Beacon Economics Comparative Analysis

Employment

Labor markets in the City of Los Angeles and in the balance of Los Angeles County continue to post steady gains and 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.

County and City Total Private Employment County and City Private Average Wage Los Angeles, Q1-08 to Q2-16 Los Angeles, Q1-08 to Q2-16 2.4 65

1.4 60

55 2.2 1.3 50

45 Average Wage ($000s) City Employment (Millions) City Employment 2.0 1.2 40 Q1-08 Q1-10 Q1-12 Q1-14 Q1-16 Q1-08 Q1-10 Q1-12 Q1-14 Q1-16 County Balance Employment (Millions) Employment Balance County

LA County Balance LA City LA County Balance LA City Source: California Employment Development Department,QCEW Source: California Employment Development Department, QCEW

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% in the 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 is creating jobs on both ends of the wage spectrum. Natural Resources (NR) and Construction was the fastest growing industry, increasing 9.1% from the second quarter of 2015 to the second quarter of 2016 and reaffirming the observation 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%). Such high-skilled sectors as Information (1.5%), Professional, Scientific, Technical Services, and Management (1.1%), and Financial Activities (0.8%) posted more modest growth. After being primary drivers of growth during the economic recovery, these office-based sectors saw job growth cool. Employment in these industries accelerated rapidly during the recovery and in the early stages of economic expansion, but more recent employment trends have shifted to industries 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 experienced 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 value of 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% from the second quarter of 2015 to the second quarter of 2016. Some noteworthy manufacturers have suffered significant losses; American Apparel’s declining sales and rising costs, for example, caused the company to file for bankruptcy, and many workers were laid off.

City of Los Angeles: A Comparative Analysis 5 Beacon Economics Comparative Analysis

Industry Employment, City of Los Angeles, Q2-16 Employ- Y-o-Y Growth ment City County City Industry (000s) (%) (%) Share (%) NR/Construction 46.9 9.1 4.6 33.1 Transport/Warehouse/Util 64.6 8.8 5.4 37.3 Education 51.1 6.2 -4.8 51.9 Leisure and Hospitality 196.7 2.9 6.1 39.1 Information 58.4 1.5 22.1 24.9 Other Services 64.2 1.4 0.4 43.1 Prof, Sci, Tech, and Mgmt 142.3 1.1 -2.6 43.2 Financial Activities 97.3 0.8 4.5 44.7 Admin Support 92.1 0.8 2.7 34.2 Health Care 258.6 0.6 6.5 40.0 Retail Trade 145.5 0.6 1.0 34.8 Wholesale Trade 69.8 -3.8 2.0 31.2 Manufacturing 93.0 -8.1 3.0 26.0 Total Private 1,389.7 1.4 4.1 36.7 Source: 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 had a 22.1% increase from the second quarter of 2015 to the second quarter of 2016. The Motion Picture and Sound Recording 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 wage in the balance of the County declined by 11.5%. Conversely, the Information industry saw the average wage in the City increase by 10.7%, year over year, to a citywide high of $139,100.

As the economic recovery continues, wages are in- Industry Average Wage, City of Los Angeles, Q2-16 creasing across most industries. In the City, three Average Y-o-Y Growth Wage City County Relative other industries, besides Information, saw aver- Industry ($000s) (%) (%) Wage* age wages grow at rates of at least 5.0%: Health Information 139.1 10.7 -11.5 56.3 Care (8.0%), NR/Construction (5.8%), and Wholesale Health Care 45.5 8.0 2.1 6.5 Trade (5.0%). Health Care average wage growth was NR/Construction 57.6 5.8 0.5 -9.4 Wholesale Trade 63.3 5.0 1.1 1.3 led by growing employment in the high-paying Am- Financial Activities 120.4 4.6 2.7 42.6 bulatory Health Care Services subsector, which had Manufacturing 57.4 4.5 9.0 -19.0 a growth rate of 4.8% year over year in both the City Other Services 37.1 4.1 0.1 4.4 Leisure and Hospitality 42.2 3.5 2.5 25.3 and the balance of the County. Transport/Warehouse/Util 59.8 3.1 -1.5 -4.3 Admin Support 41.2 1.8 7.8 5.4 Average wages in Manufacturing increased by 4.5%. Retail Trade 35.6 0.9 -1.9 6.9 This suggests that many of the jobs lost by the Man- Prof, Sci, Tech, and Mgmt 106.6 0.7 2.3 8.9 ufacturing sector were low-paying jobs in such sub- Education 62.7 -2.9 6.9 28.0 sectors as Food Product Manufacturing and Apparel Total Private 62.2 4.0 2.0 10.9 Manufacturing. In the City, Private Education was Source: California Employment Development Department, QCEW *Industry Wage relative to the Avg. Annual Wage for the Industry the only industry for which the average wage de- in Los Angeles County. creased from the second quarter of 2015 to the second quarter of 2016, dropping 2.9%. This implies that the new jobs in the Private Education industry pay below-average wages, yet the fastest-growing subsector for the City was Educational Services, which grew at a rate of 6.2% from the second quarter of 2015 to the second quarter of 2016, primarily because of private institutions of higher education.

City of Los Angeles: A Comparative Analysis 6 Beacon Economics Comparative Analysis

Food Services and Drinking Places grew by 3.1% in the City and 6.4% in the rest of the County from the second quarter of 2015 to the second quarter of 2016, largely because of increased consumer spending as local household incomes have increased. Record tourism has also helped to propel this subsector’s growth. Although this subsector continues to expand payroll employment, the subsector’s average wage in the City is $22,400, in part because many workers in this subsector work less than full time. Industry Employment, City of Los Angeles, Q2-16 Employ- Y-o-Y Growth City ment City County Avg. Wage Industry (000s) (%) (%) ($000s) Specialty Trade Contractors 29.6 8.5 8.4 49.6 Educational Services 51.1 6.2 -4.8 62.7 Ambulatory Health Care Services 79.4 4.8 4.8 63.2 Personal And Laundry Services 23.8 4.6 0.9 28.1 Hospitals 46.7 3.4 3.2 80.6 Food Services And Drinking Places 145.5 3.1 6.4 22.4 Professional And Technical Services 124.4 2.0 -3.1 104.5 Real Estate 26.9 1.6 4.3 72.8 Motion Picture And Sound Recording Industries 24.2 1.6 27.7 154.8 Nursing And Residential Care Facilities 32.0 1.5 1.0 34.0 Food And Beverage Stores 35.0 1.4 -1.7 28.7 Insurance Carriers And Related Activities 24.2 1.4 13.4 109.2 Administrative And Support Services 90.2 0.9 2.6 40.9 Merchant Wholesalers, Durable Goods 26.3 -1.8 0.5 63.5 Merchant Wholesalers, Nondurable Goods 36.4 -4.6 4.6 56.2 Source: California Employment Development Department, QCEW The Merchant Wholesalers of Nondurable Goods subsector saw job losses of 4.6% from the second quarter of 2015 to the second quarter of 2016. This subsector alone accounted for about 64% of the 2,800 jobs lost by the Wholesale Trade industry. The largest declines in payroll employment were in Wholesale of Retail Goods. It is evident that the decline of Apparel Manufacturing has had negative ramifications for related subsectors. Another factor contributing to the job losses in the Wholesale industry is the rise of e-commerce, which has allowed firms to connect directly with 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 balance of the County. The region’s labor market appears to be primed for continued growth in 2017. Wage gains in the presence of a tight labor market will provide a solid foundation for positive trends in consumer spending, business investment, 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 recent years, after declining sharply during the Great Recession and bottoming out in 2009. Improving labor market conditions have contributed to job growth and wage gains, which have increased personal income for residents and boosted 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 increased more slowly than in the balance of the County from 2015 to 2016. Net of aberrations, from the fourth quarter of 2015 to the fourth quarter of 2016, taxable sales for all of Los Angeles County grew 5.3% over the year-earlier sales period, with 4.4% in the City of Los Angeles and 5.7% in the balance of the County.

City of Los Angeles: A Comparative Analysis 7 Beacon Economics Comparative Analysis

Taxable Sales Taxable Sales City of Los Angeles and Los Angeles County, Q1-00 to Q4-16 Selected Counties, Q1-06 to Q4-16 28 12 120

26 11 110

100 24 10 90 22 9 80

20 8 70

18 7 County County Taxable = Q1-06) (100 Indexed Sales,

City City Taxable SA) ($ Billions, Sales Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15 Q1-16 Q1-17

County County Taxable SA) ($ Billions, Sales Q1-00 Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Q1-12 Q1-14 Q1-16 Los Angeles County Orange County Los Angeles County Balance Los Angeles City San Diego County Riverside-San Bernardino MSA

Source: California Board of Equalization Source: California Board of Equalization

Consumer spending growth in the City has been robust over the long run. From the fourth quarter of Taxable Sales of Cities (Indexed) 2006 to the fourth quarter of 2016, taxable sales in Los Angeles and Selected Cities, Q4-02 to Q4-16 the City of Los Angeles increased by 15.9%, outpacing 160 150 the City of Long Beach (+7.6%), the City of Riverside 140 (+12.8%), and the City of Santa Ana (+1.3%). Taxable 130 sales grew by 16.7% in the City of Anaheim and 16.8% 120 in the City of San Diego over the same 10-year period. 110 100 The City of Los Angeles outperformed most major 90

Southern California cities (except for the City of San Indexed Taxable = Q4-02) (100 Sales Diego) in terms of taxable sales, on a year over year 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 Anaheim basis. From the fourth quarter of 2015, taxable sales Santa Ana Riverside San Diego increased by 4.4% in the City of Los Angeles, 0.7% in Source: California Board of Equalization the 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 Anaheim during the same period.

Compared to other major cities in Los Angeles County, the City of Los Angeles fared well, given that taxable sales growth is more volatile in smaller cities. From the fourth quarter of 2015 to the fourth quarter of 2016, only the City of Torrance (+9.2%), the City of Pasadena (+9.2%), the City of Santa Clara (+5.9%), the City of Burbank (+20.2%), and the City of Cerritos (+8%) showed faster taxable sales growth. Taxable sales revenue decreased during the same period in 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 has been in all counties in Southern California. From the fourth quarter of 2006 to the fourth quarter of 2016, taxable sales in Los Angeles County increased by 14.7%. Over the same 10-year period, taxable sales increased 9.0% in Orange County, 18.5% in San Diego County, 17.9% in the Inland Empire, and 20.8% in the State of California overall.

City of Los Angeles: A Comparative Analysis 8 Beacon Economics Comparative Analysis

Taxable Sales by Region Los Angeles City and Comparison Cities, Q4-15 to Q4-16 Quarterly Taxable Sales Quarterly Taxable Sales Per 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 3.0 Long Beach 1,230.6 1,239.2 0.7 2,554 2,555 0.0 Anaheim 1,697.0 1,685.5 -0.7 4,774 4,706 -1.4 Riverside 1,356.1 1,398.2 3.1 4,216 4,306 2.1 San Diego 5,545.7 5,913.7 6.6 4,020 4,249 5.7 Santa Ana 1,005.6 1,027.5 2.2 2,949 2,996 1.6 Sources: California Board of Equalization, California Department of Finance

Taxable Sales by Region Los Angeles County Cities, Selected Counties, and California, Q4-15 to Q4-16 Quarterly Taxable Sales Quarterly Taxable Sales Per 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 3.0 Torrance 964.7 1,053.0 9.2 6,582 7,155 8.7 Glendale 1,023.7 985.5 -3.7 5,128 4,887 -4.7 Pasadena 739.6 807.6 9.2 5,291 5,727 8.2 Santa Clarita 758.5 803.4 5.9 3,513 3,658 4.1 Santa Monica 818.6 796.2 -2.7 8,793 8,503 -3.3 Burbank 655.7 788.3 20.2 6,256 7,500 19.9 Cerritos 701.5 757.9 8.0 14,257 15,339 7.6 Beverly 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 4.4 Orange 15,158.3 15,812.3 4.3 4,809 4,968 3.3 San Diego 13,361.2 14,228.9 6.5 4,094 4,327 5.7 Riverside-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 5.7 Sources: California Board of Equalization, California Department of Finance

Taxable Receipts by Major Categories Los Angeles County, Q4-15 to Q4-16 Q4-15 Q4-16 Change Share of Category ($ millions) ($ millions) (%) Taxable Receipts Restaurants and Hotels 57.0 59.9 5.1 15.4 Autos and Transportation 62.5 64.2 2.6 16.5 Food and Drugs 21.3 21.6 1.7 5.6 General Consumer Goods 90.3 90.7 0.4 23.3 Building and Construction 26.4 26.3 -0.4 6.8 Fuel and Service Stations 32.2 31.5 -2.2 8.1 Business and Industry 49.8 47.4 -5.0 12.2 Total 384.7 389.3 1.2 100.0 Source: 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

City of Los Angeles: A Comparative Analysis 9 Beacon Economics Comparative Analysis receipts from General Consumer Goods, the largest category of consumer spending, increased by a tepid 0.4% year over year. Meanwhile, Business and Industrial tax revenue was down by 5% year over year, and persistently low oil prices 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 the next section). Meanwhile, there are signs that automobile purchases may be hitting a cyclical peak in Los Angeles as well as in the United States. J.D. Power and LMC Automotive forecast a 0.2% increase in automobile sales in 2017 versus 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 registrations were up by 11.1% in California and 5.2% in the U.S. compared to 2014.3

Tourism Hotel data suggest that tourism and business travel had a particularly strong year in 2016 in the City of Los Angeles and the rest of the County. From 2015 to 2016, the average annual daily hotel room rate in the City of Los Angeles increased by 12.5% to $232 a night, with especially strong growth in the San Fernando Valley (16.2%), parts of the Downtown 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 Angeles International Airport (9.4%), the City of Pasadena (9.1%), and the Marina del Rey neighborhood (8.7%), all of which are popular tourist areas.

Occupancy Rate Average Daily Rate L.A. City L.A. County Balance L.A. City L.A. County Balance Year Rate (%) Y-o-Y Change Rate (%) Y-o-Y Change Year Rate ($) Y-o-Y Change Rate ($) Y-o-Y Change 2006 74.1 - 78.5 - 2006 154.79 - 161.57 - 2007 75.2 1.1 78.1 -0.4 2007 165.11 6.7 174.00 7.7 2008 74.4 -0.8 74.3 -3.8 2008 166.79 1.0 180.46 3.7 2009 68.0 -6.4 68.2 -6.1 2009 146.65 -12.1 156.41 -13.3 2010 69.7 1.7 72.6 4.4 2010 147.90 0.9 158.84 1.6 2011 71.5 1.8 76.0 3.4 2011 165.68 12.0 169.23 6.5 2012 75.6 4.1 78.5 2.5 2012 172.26 4.0 178.24 5.3 2013 77.9 2.3 80.2 1.7 2013 178.85 3.8 186.46 4.6 2014 78.6 0.7 82.5 2.3 2014 194.57 8.8 197.26 5.8 2015 80.0 1.4 82.6 0.1 2015 206.54 6.2 209.65 6.3 2016 82.2 2.2 84.1 1.5 2016 232.44 12.5 227.53 8.5 Source: CBRE Hotels Source: CBRE Hotels From 2015 to 2016, the annual average hotel occupancy rate increased by 2.2 percentage points in the City of Los Angeles to 82.2%, with strong growth Downtown (2.8 percentage points). In comparison, the annual average hotel occupancy rate increased by 1.5 percentage points in the balance of the County, with strong growth in the City of Santa Clarita (5.5 percentage points), the City of West Hollywood (4.2 percentage points), the City of Beverly Hills (3.8 percentage points) and the Marina 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 May 2, 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.

City of Los Angeles: A Comparative Analysis 10 Beacon Economics Comparative Analysis and increased average daily rate imply higher hotel revenues, which mean higher taxable receipts from hotels, contributing to increased taxable sales in the Restaurants and Hotels category.

Occupancy Rate (%), Comparison Cities Average Daily Rate, Comparison Cities City 2015 2016 Y-o-Y Change City 2015 ($) 2016 ($) Y-o-Y Change (%) Los Angeles 80.0 82.2 2.2 Los Angeles 206.54 232.44 12.5 Anaheim 81.2 83.1 1.9 Anaheim 176.90 178.38 0.8 Long Beach 77.7 79.0 1.3 Long Beach 156.63 166.71 6.4 Riverside/Corona 74.8 76.6 1.8 Riverside/Corona 116.01 123.93 6.8 San Diego 82.2 82.9 0.6 San Diego 197.58 201.49 2.0 Source: CBRE Hotels Source: CBRE Hotels Passenger traffic for Los Angeles International Airport shows that more tourists and business travelers, both domestic and foreign, are traveling to the City of Los Angeles each year. In 2016, 58 million domestic passengers traveled through 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 Diego International Airport—LAX showed impressive growth. Long Beach Airport, much smaller than the others, added more routes in 2016, resulting in a 13% surge in domestic passengers compared to 2015 and possibly drawing some domestic traffic away from LAX.5

Domestic Airport Passenger Flows International Airport Passenger Flows Los Angeles & Major So. Cal. International Airports, Jan-13 to Jan-17 Los Angeles & Major So. Cal. International Airports, Jan-13 to Jan-17 300 120 250 110 200

100 150

90 100

80 50 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Domestic Passengers, SA Passengers, Domestic = 100) (Jan-13 & Indexed Los Angeles Long Beach Orange County Los Angeles Long Beach Orange County International Passengers, SA Passengers, International = 100) (Jan-13 & Indexed Ontario/Riverside San Diego Ontario/Riverside San Diego

Source: Visit California Source: Visit California

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 passengers, an increase of 7.8% from 2015 and 11.9% from 2014. Note that County data do not separate domestic and international passengers traveling to the City of Los Angeles from passengers traveling to other parts of Los Angeles County. However, it seems likely, based on the relatively high levels of traffic growth at LAX, that 2016 brought an increase 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 were available. 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

City of Los Angeles: A Comparative Analysis 11 Beacon Economics Comparative Analysis

The Los Angeles tourism boom has increased Amtrak ridership. Ridership out of Union Station in Los Angeles, the busiest Amtrak station in Southern California and one of the busiest in the United States, grew 2.9% or 45,648 passengers from 2015 to 2016, topping the average increase of all stations in California (2.2%). In comparison, ridership out of San Diego,6 grew 3.3%. Meanwhile, from 2015 to 2016, ridership grew 4.4% for Anaheim and 5.2% for Santa Ana and decreased 4.3% for Riverside. Because many riders travel between the City of Los Angeles and these other destinations, it is difficult to draw conclusions about growth in one city relative to growth in others. What is important, however, is that the increase in ridership at Union Station suggests that tourism and business travel via rail remains robust. Amtrak Ridership, Selected Cities and California, 2014 to 2016 City 2014 2015 2016 Change % Los Angeles 1,551,090 1,589,391 1,635,039 2.9 Anaheim 254,066 270,819 282,700 4.4 Riverside 12,105 12,837 12,287 -4.3 San Diego 896,902 1,011,785 1,044,833 3.3 Santa Ana 185,327 182,291 191,716 5.2 California 11,514,763 11,890,454 12,148,179 2.2 Source: Amtrak Fact Sheets, FY 2014 - FY 2016 Note: 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 Tourism Economics projects that Los Angeles County could lose $736 million in direct tourism spending,7 in part because the uncertainty about the Trump Administration’s efforts to impose a travel ban and the unwelcoming message it is sending to the rest of the world are thought to negatively affect the tourism industry.8 Another possible reason for worry is that the U.S. dollar has appreciated considerably, especially against the Canadian dollar, the euro, and the Chinese yuan. This means purchasing power for foreign visitors has decreased and the U.S. has become a more expensive 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 of policy discussions regarding topics such as a proposed border wall.

Port Activity Known as the busiest ports in the United States and the largest port complex in the Western Hemisphere, the Port of Los Angeles and the Port of Long Beach accounted for more than 40% of exports from California. Despite a strong U.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 value of 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 777,352 passengers, up 0.5% from 2015. 7Goldman, H. (2017). “Trump travel ban begins to deter foreign tourists from U.S.” March 2017. Chicago Tribune. Retrieved on May 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.” March 2017. 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

City of Los Angeles: A Comparative Analysis 12 Beacon Economics Comparative Analysis will continue the growth in exports from both ports. As of end of February 2017, year-to-date exports by value were up 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 Los Angeles but decreased 6% for the Port of Long Beach. The total value of imports to both ports in 2016 totaled $296.5 billion, a 0.5% decrease compared to 2015 values. Current data imply that 2017 could see further decreases in import activities. As of end of February 2017, year-to-date imports by value were down by 4.4% for the Port of Los Angeles and 0.3% for the Port of Long Beach, respectively, compared to February 2016 year-to-date exports by value.

With an increase in exports by value combined with Total Trade by Value of Commodities (Imports and Exports) a slight decrease in imports by value, the Port of Los Ports of Los Angeles and Long Beach, 2003 to 2016 Angeles and the Port of Long Beach had a combined 300 trade deficit of $231.3 billion, a slight improvement 250 from 2015’s deficit of $235.2 billion. Concerns per- sist over the largest trading partner with both ports, 200

China. In the first quarter of 2017, the Chinese econ- 150 omy grew 6.9%. Although that exceeded the 6.5% Total Value, $ Billions 100 growth target set by the Chinese government, it was one the slowest since the global financial crisis. The 50 2003 2005 2007 2009 2011 2013 2015 drop-off in port activity with China that was present year in 2015 carried over to 2016. Imports from China re- Port of Los Angeles Port of Long Beach mained unchanged in 2016 compared to 2015, total- Source: WISERTrade ing $163.9 billion in both years. On the other hand, exports to China totaled $16.7 billion in 2016, which dipped 0.7% from 2015.

City of Los Angeles: A Comparative Analysis 13 Beacon Economics Comparative Analysis

Exports by Port Port 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 6.6 2005 20.7 3.2 19.4 27.8 2006 26.3 27.0 21.6 11.3 2007 30.2 15.1 26.7 23.5 2008 34.8 15.0 31.9 19.5 2009 28.0 -19.5 24.2 -24.2 2010 33.7 20.5 31.8 31.3 2011 43.9 30.1 34.9 9.8 2012 42.7 -2.6 35.6 2.1 2013 40.8 -4.5 39.6 11.3 2014 40.0 -2.0 37.2 -6.2 2015 31.7 -20.7 31.1 -16.4 2016 32.7 3.1 32.5 4.5 Source: WISERTrade

Imports by Port Port 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 13.6 2005 169.1 5.9 53.0 9.4 2006 200.1 18.3 57.7 8.7 2007 211.2 5.6 60.6 5.1 2008 210.5 -0.3 60.0 -1.0 2009 169.2 -19.6 44.4 -26.0 2010 204.0 20.5 56.7 27.7 2011 229.9 12.7 59.9 5.6 2012 241.3 5.0 65.3 9.2 2013 245.1 1.6 69.8 6.8 2014 251.5 2.6 67.2 -3.6 2015 238.9 -5.0 59.1 -12.1 2016 240.9 0.8 55.6 -6.0 Source: WISERTrade

Top 10 Commodity Exports, Port of Los Angeles, 2016 2015 2016 Change 2016 Commodity ($ billions) ($ billions) (%) Share (%) Industrial Machinery, Including Computers 4.6 4.1 -10.1 12.6 Plastics And Articles 2.6 2.7 5.4 8.3 Electric Machinery Etc; Sound Equip; Tv Equip; Pts 1.7 1.8 5.2 5.5 Vehicles, Except Railway Or Tramway, And Parts Etc 1.5 1.8 16.3 5.4 Edible Fruit & Nuts; Citrus Fruit Or Melon Peel 1.1 1.4 29.5 4.2 Optic, Photo Etc, Medic Or Surgical Instrments Etc 1.0 1.2 18.6 3.6 Miscellaneous Chemical Products 1.2 1.2 -0.1 3.5 Meat And Edible Meat Offal 1.4 1.1 -18.9 3.4 Cotton, Including Yarn and Woven Fabric 1.1 1.1 -2.5 3.3 Aluminum And Articles 0.8 1.0 37.6 3.2 Total All Commodities 31.7 32.7 3.1 100.0 Source: WISERTrade

City of Los Angeles: A Comparative Analysis 14 Beacon Economics Comparative Analysis

Top 10 Commodity Exports, Port of Long Beach, 2016 2015 2016 Change 2016 Commodity ($ billions) ($ billions) (%) Share (%) Industrial Machinery, Including Computers 4.4 3.9 -11.3 12.1 Vehicles, Except Railway Or Tramway, And Parts Etc 2.8 3.7 31.7 11.4 Plastics And Articles 1.9 2.3 21.2 7.0 Electric Machinery Etc; Sound Equip; Tv Equip; Pts 1.5 1.5 -2.9 4.6 Aluminum And Articles 0.7 1.5 115.0 4.6 Meat And Edible Meat Offal 1.4 1.4 4.8 4.4 Edible Fruit & Nuts; Citrus Fruit Or Melon Peel 1.3 1.2 -5.5 3.7 Miscellaneous Chemical Products 0.8 1.0 19.9 3.1 Optic, Photo Etc, Medic Or Surgical Instrments Etc 0.7 0.9 32.9 2.9 Aircraft, Spacecraft, And Parts 0.6 0.9 51.5 2.6 Total All Commodities 31.1 32.5 4.5 100.0 Source: WISERTrade

Top 10 Trade Partners (Exports), Port of Los Angeles, 2016 2015 2016 Change 2016 Commodity ($ billions) ($ billions) (%) Share (%) China 7.8 7.7 -0.9 23.7 Japan 6.3 6.7 6.0 20.4 Republic of Korea 4.2 3.9 -6.3 11.9 Hong Kong 1.4 1.8 29.7 5.6 Taiwan 1.9 1.8 -6.8 5.5 Vietnam 0.9 1.3 46.3 3.9 Thailand 0.8 1.1 39.5 3.5 Singapore 1.4 0.9 -36.2 2.7 Indonesia 0.6 0.6 5.6 1.9 Malaysia 0.6 0.5 -6.5 1.6 Total All Partner Countries 31.7 32.7 3.1 100.0 Source: WISERTrade

Top 10 Trade Partners (Exports), Port of Long Beach, 2016 2015 2016 Change 2016 Commodity ($ billions) ($ billions) (%) Share (%) China 9.0 9.0 -0.6 27.6 Australia 3.9 4.3 12.0 13.3 Republic of Korea 3.1 3.1 -1.0 9.6 Taiwan 2.4 2.5 2.6 7.7 Japan 2.5 2.4 -4.0 7.3 Hong Kong 1.8 1.9 4.2 5.8 Vietnam 0.8 1.8 127.6 5.7 Singapore 1.0 1.1 5.0 3.4 Philippines 0.7 0.7 5.1 2.1 New Zealand 0.6 0.6 14.1 2.0 Total All Partner Countries 31.1 32.5 4.5 100.0 Source: WISERTrade

City of Los Angeles: A Comparative Analysis 15 Beacon Economics Comparative Analysis

Residential Real Estate Homebuyer’s Market Median prices for existing single-family homes in the City of Los Angeles continued their upward trajectory through the end of 2016. This price appreciation is the result of strong homebuyer demand fueled by a population of households with increased spending capacity, low mortgage rates, limited inventory, and a recovery defined by subpar construction activity.

At the beginning of the economic recovery, there was a glut of distressed properties on the market, Residential Property Assessed Valuation and because these properties were sold at a discount, City of Los Angeles, 2006 to 2016 median prices dropped sharply. As the momentum 575 465 of the economic expansion increased, the volume of distressed properties on the market diminished. The 525 405 City of Los Angeles had 968 foreclosures in 2016, a 475 345 nearly 87% decline from foreclosures in 2011. Most of Southern California has followed a similar trend, 425 285 and with fewer distressed properties on the market, City Total ($ Billions) County Balance ($ Billions) Balance County there has been substantial price appreciation for ex- 375 225 isting single-family homes in the City of Los Angeles. 2006 2008 2010 2012 2014 2016 L.A. County Balance City of L.A. Median prices for existing single-family homes in the Source: DataQuick City of Los Angeles reached $641,000 at the end of 2016, an 8.5% year-over-year increase. From the end of 2011 to the end of 2016, median prices in the City grew by 80.1%. This increase in prices and the lack of supply have led to stagnant sales. Over the five-year period ending in 2016, sales of existing single-family homes increased by only 4.7% in the City of Los Angeles and have yet to reach pre-recession levels.

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

City of Los Angeles: A Comparative Analysis 16 Beacon Economics Comparative Analysis

Median Price for Existing Single-Family Homes Existing Single-Family Home Sales City of Los Angeles, Q4-06 to Q4-16 City of Los Angeles, Q4-06 to Q4-16 650 6 12

550

450 6 3

350 Median Price ($000s, SA) ($000s, Price Median City Home Sales (000s, SA) (000s, Sales City Home

250 SA) (000s, Sales Home County 0 0 Q4-06 Q4-08 Q4-10 Q4-12 Q4-14 Q4-16 Q4-06 Q4-08 Q4-10 Q4-12 Q4-14 Q4-16

L.A. County Balance City of L.A. L.A. County Balance City of L.A. Source: DataQuick Source: DataQuick

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

Existing Single-Family Home Market Comparisons, 2016 Annual Sales Median Price 5-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 7.4 Long Beach 2,548 13.1 0.8 547.0 60.3 7.0 Riverside 4,049 -6.9 3.1 343.9 78.0 8.8 San Diego 8,489 20.2 -1.5 603.5 53.3 7.1 Santa 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 8.5 L.A. County Balance 38,906 4.6 0.2 567.6 71.0 7.4 Source: DataQuick

Distressed Property Indicator Comparisons, 2016 Defaults Foreclosures 5-Year 1-Year 5-Year 1-Year City Defaults Growth (%) Growth (%) Foreclosures Growth (%) Growth (%) Anaheim 356 -79.5 -15.6 75 -90.8 -21.9 Long Beach 522 -76.9 -7.4 143 -87.9 3.6 Riverside 738 -80.4 -18.1 246 -89.1 -15.5 San Diego 1,308 -80.2 -13.6 333 -90.6 -31.1 Santa Ana 348 -76.8 0.0 62 -92.0 -29.5 City of L.A. 3,751 -75.9 -10.6 968 -86.6 -16.6 L.A. County Balance 8,416 -76.6 -9.8 2,227 -87.9 -20.7 Source: DataQuick

City of Los Angeles: A Comparative Analysis 17 Beacon Economics Comparative Analysis

Rental Market Households 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. The average monthly rent has been increasing since 2011, a reflection of sustained high demand. Average apartment monthly rents in the rest of Los Angeles County have also been increasing but remain more affordable with an average monthly rent of $1,660. The trend of falling vacancies since 2010 further demonstrates the strength of rental demand 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 the County were 3.5% and 3.1%, respectively.

Average Apartment Rent Apartment Vacancy Rate City of Los Angeles, Q1-09 to Q4-16 City of Los Angeles, Q1-09 to Q4-16 2,000 5.5

5.0 1,800 4.5

1,600 4.0

3.5 1,400

Vacancy (%, Rate SA) 3.0 Cost Cost of ($/month, SA) Rent 1,200 2.5 Q1-09 Q3-10 Q1-12 Q3-13 Q1-15 Q3-16 Q1-09 Q3-10 Q1-12 Q3-13 Q1-15 Q3-16

L.A. County Balance L.A. City L.A. County Balance L.A. City Source: REIS Source: REIS

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

The City of Long Beach’s average apartment rents had the fastest year-over-year growth rate (8.0%) Apartment Market Comparisons, 2016 from the end of 2015 to the end of 2016. Overall, San Cost of Rent Vacancy Rate Diego had the highest average apartment rent com- Annual 1-Year City $/month Growth (%) % Change (p.p.) pared to the Cities of Anaheim, Long Beach, Los An- Anaheim 1,489 2.4 3.0 0.8 geles, Riverside, and Santa Ana. The most affordable Long Beach 1,648 8.0 4.3 0.9 location as of the fourth quarter of 2016 was River- Riverside 1,216 6.5 2.4 -0.1 side, and its affordability is enticing many house- San Diego 1,833 3.2 4.0 0.0 holds from Greater Los Angeles to move there, espe- Santa Ana 1,613 1.9 2.4 0.1 cially those households on the lower end of the in- City of L.A. 1,823 6.4 3.5 0.3 come spectrum. L.A. County Balance 1,660 5.8 3.1 -0.1 Source: REIS Because many potential homebuyers have had to shift into the rental market, average rents are increasing to unaffordable levels in many of the most populous cities in Southern California. In the aftermath of

City of Los Angeles: A Comparative Analysis 18 Beacon Economics Comparative Analysis the recession, developers have been cautious and construction activity has been modest. However, as the economy strengthens, the low inventory of homes for sale and low vacancy rates have created investment opportunities for developers.

Residential Construction Developers in the City of Los Angeles recognize that a low supply of housing along with strong demand provides an exceptional investment opportunity. In particular, builders are choosing to develop multi-family housing projects because they tend to offer higher returns on investment. This is good news for the City of Los Angeles, which faces significant land constraints and thus will benefit most from infill multi-family developments. In 2016, there were 13,161 multi-family housing unit permits issued, a 4.7% decrease from 2015. Despite this slowdown, permits for multi-family units have increased by 120% from 2011 to 2016. The balance of the County has followed a similar trend, growing by 84.8% over the same five years. Still, the City accounted for nearly 77% of all multi-family unit permits issued in the County of Los Angeles. Furthermore, single-family unit permits seem to be returning to their pre-recession level in the City of Los Angeles. From 2011 to 2016, there was a 257.1% increase in single-family housing permits issued in the City. The balance of the County grew at 50.9% during the same period and has not reached pre-recession levels.

Single-Family Housing Permits Multi-Family Housing Permits City of Los Angeles, Q1-07 to Q1-17 City of Los Angeles, Q1-07 to Q1-17 4,000 1,500

3,000 1,000

2,000

500 1,000 Units (SA, Units Smoothed) (SA, Units Smoothed)

0 0 Q1-07 Q1-09 Q1-11 Q1-13 Q1-15 Q1-17 Q1-07 Q1-09 Q1-11 Q1-13 Q1-15 Q1-17

L.A. County Balance L.A. City L.A. County Balance L.A. City Source: CIRB Source: CIRB

Los Angeles-area residents are embracing the shift toward denser multi-family housing projects. This is evident by the overwhelming defeat of Measure S, the City of Los Angeles measure that sought to restrict the construction of properties requiring zone changes or General Plan Amendments (such as loosening height restrictions). Other nearby cities are also demonstrating similar sentiments; in fact, voters in the City of Santa Monica opposed Measure LV, a measure that would have disrupted construction of apartment towers (taller than three stories) by requiring a citywide vote for every project meeting the criteria. These housing measures would have been detrimental to the housing markets of each respective city, since these stringent requirements would have hampered construction activity 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-family housing, other Southern California cities are following different trends. Long Beach has seen a decline in the number of 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 housing construction from 2011 to 2016, even as multi-family housing permitting in Riverside increased only 7.6% from 2011

City of Los Angeles: A Comparative Analysis 19 Beacon Economics Comparative Analysis to 2016. Santa Ana also has seen an increase in construction of single-family housing and a decline in multi-family unit permitting. Single-family unit permits in San Diego declined by 84.4% from 2015 to 2016, but multi-family housing unit permits increased by 11.7% over the last year and 165% from 2011 to 2016.

Residential Housing Construction Comparisons, 2016 Single-Family Multi-Family 5-Year 1-Year 5-Year 1-Year City Units Growth (%) Growth (%) Units Growth (%) Growth (%) Anaheim 135 400.0 285.7 1,201 900.8 21.9 Long Beach 20 -69.7 0.0 98 -57.8 -25.8 Riverside 210 388.4 13.5 254 7.6 13.4 San Diego 861 84.4 -34.1 5,692 165.0 11.7 Santa 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 -4.7 L.A. County Balance 2,775 50.9 12.9 3,925 84.8 -18.8 Source: 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 Measure LV 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 Los Angeles in recent years. Rising commercial real estate values in the City continued to attract strong developer interest, and permitting levels in the City picked up in 2016. Nonresidential construction permits valued at $2.4 billion were filed during the year, a 0.8% increase in permit valuations from the prior year. Although this increase is modest, growth in the City was in marked contrast to nonresidential permitting activity in the rest of the County of Los Angeles, 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 balanced by a strong increase in nonresidential permitting for alterations and additions to existing buildings. Renovations have 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 concentrated 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, office properties in the City rented for 18.3% more than office properties in the balance of the County. This gap appears to be widening thanks to stronger annual rental rate appreciation in the City (+2.5% more year over year than elsewhere in 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 housing units.

City of Los Angeles: A Comparative Analysis 20 Beacon Economics Comparative Analysis

Office Permit Values ($ 000s), 2016 2016 1-Yr. Chg. 1-Yr. Chg. Location ($ 000s) ($ 000s) (%) City of L.A. 177,423 -3,810 -2.1 L.A. County Balance 167,871 2,074 1.3 Riverside 770 770 Santa Ana 1,215 675 124.9 Anaheim 2,907 2,907 Long Beach 23,417 18,291 356.9 San Diego 37,239 -43,478 -53.9 Source: CIRB The declining affordability of office space in the City may be contributing to the surge of new and existing firms that 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 and the fourth quarter of 2016. This occurred despite a strong influx of new stock onto the market during that time as the balance of the County added 17.3 million square feet of office space between the fourth quarter of 2015 and the fourth quarter of 2016. This is compared to a 0.7 percentage point drop in the City, which added 500,000 square feet during 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 office category hit a post-recession high.

Retail

Although the City of Los Angeles is home to numerous shopping centers with some of the highest revenues per square foot in the Retail Permit Values ($ 000s), 2016 nation, the City has not been immune to recent shifts in con- 2016 1-Yr. Chg. 1-Yr. Chg. Location ($ 000s) ($ 000s) (%) sumer trends. According to Moody’s Investors Service, the num- City of L.A. 259,986 4,024 1.6 ber of distressed U.S. retailers has tripled since the Great Reces- L.A. County Balance 281,403 65,671 30.4 sion.11 As consumers turn to online alternatives, general con- Santa Ana 538 -77 -12.5 sumer goods sales at brick-and-mortar stores have been lacklus- Long Beach 790 -15,695 -95.2 ter. Some local ramifications have included weak employment Riverside 16,952 -1,436 -7.8 San Diego 45,822 -98,661 -68.3 growth in the retail sector and a small increase in vacancy rates Anaheim 192,887 155,782 419.8 at commercial retail properties. Between the fourth quarter of Source: CIRB 2015 and the fourth quarter of 2016, the average vacancy rate increased by 0.6 percentage points to 5.2%.

Still, the retail market in the City of Los Angeles remains strong overall compared to other major Southern California cities, and incomes and strong population growth make it a promising market for retailers. The average retail property in the City carries a rental rate premium of 28% over the rest of the County and is substantially pricier than in any 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's Investors Service. February 27, 2017. Retrieved May 3, 2017.

City of Los Angeles: A Comparative Analysis 21 Beacon Economics Comparative Analysis in the balance of the County. The City’s year-to-year rental rate appreciation of 2.2% between the fourth quarter of 2015 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 properties are adding entertainment and dining options as well as open space for events like concerts and farmer’s markets. Westfield Corp.’s proposed replacement of the Promenade Mall in Woodland Hills with a sprawling mixed-use development is one indication of what future retail spaces could look like. As developers race to capture a changing consumer 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 than for any other commercial category that year.

Warehouse/Distribution

Another effect of changing consumer patterns is a greater need for storage space along distribution networks. The City of Los Industrial Permit Values ($ 000s), 2016 Angeles’ proximity to the Ports of Los Angeles and Long Beach 2016 1-Yr. Chg. 1-Yr. Chg. Location ($ 000s) ($ 000s) (%) has made it an important node along these distribution chains. City of L.A. 1,400 900 180.0 However well placed the City is, though, limited space and his- L.A. County Balance 152,369 67,401 79.3 torically high land costs have been an obstacle to development. Santa Ana 0 -750 -100.0 This has been pushing investment in new industrial space out of San Diego 2,897 2,897 the City, and in 2016, industrial projects that obtained approval Riverside 3,944 2,524 177.9 Anaheim 8,800 8,800 in the City were valued at $1.4 million, compared to $152.4 mil- Long Beach 41,927 31,840 315.7 lion in the balance of the County. Source: CIRB Constrained addition of new stock in recent years has placed the City among the tightest warehouse and distribution markets in the region, with a vacancy rate of 5.7% as of the fourth quarter of 2016. By contrast, the rest of the County added close to one million square feet of warehouse space over the last year, even though average rents increased 3.1% from the fourth quarter of 2015 to the fourth quarter of 2016. 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 near major research universities and technology clusters in Central Los Angeles and the South Bay. Average rental rates rose 1.8% over the last year in the City of Los Angeles, reaching an average asking rate of $13.95 per square foot in the fourth quarter of 2016. This makes the average flex/R&D property within the City 32.6% more costly to rent than in the remainder of the County, where the average flex/R&D property is leased at a rate of $10.52 per square foot. However, this price differential has been decreasing, thanks to stronger acceleration of asking rates in the rest of the County over the last year. The average rental 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&D markets have seen very constrained supply in recent 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 0.2 percentage points in the City of Los Angeles. On the other hand, vacancy rates continued to tighten in the balance of the County and reached a six-year low of 2.7% in the fourth quarter of 2016.

City of Los Angeles: A Comparative Analysis 22 Beacon Economics Comparative Analysis

Vacancy Rates for Commercial Property (%), Q1-16 Rental Rates for Commercial Property ($), Q1-16 Location R&D Office Retail Warehouse Location R&D Office Retail Warehouse City of L.A. 4.1 14.7 4.7 5.7 City of L.A. 13.79 39.13 37.07 6.90 L.A. County Balance 2.7 14.0 7.1 5.9 L.A. County Balance 10.36 34.09 28.94 6.30 Anaheim 1.3 26.0 6.7 7.6 Anaheim 9.12 26.22 27.85 6.01 Long Beach 2.7 15.1 6.3 6.6 Long Beach 11.15 28.74 30.67 7.18 Riverside N/A 21.9 6.5 N/A Riverside N/A 22.91 21.73 N/A San Diego 5.6 17.4 6.6 4.9 San Diego 12.41 31.92 26.11 9.48 Santa Ana 3.0 14.5 6.7 4.6 Santa Ana 9.80 25.70 27.85 7.13 Note: Location determined by geographic descriptions. Note: Location determined by geographic descriptions. Source: REIS Source: REIS

Nonresidential Permit Values ($ 000s), 2016 2016 1-Yr. Chg. 1-Yr. Chg. Location ($ 000s) ($ 000s) (%) City of L.A. 2,423,246 19,138 0.8 L.A. County Balance 2,426,145 -262,495 -9.8 Santa Ana 82,261 31,331 61.5 Riverside 126,420 30,478 31.8 Long Beach 190,448 59,715 45.7 Anaheim 457,678 260,104 131.6 San Diego 1,151,936 -140,893 -10.9 Source: CIRB

Nonresidential Alteration Permits New Commercial Permits City of Los Angeles and County Balance, 2007 to 2016 City of Los Angeles and County Balance, 2007 to 2016 2.0 2.0

1.5 1.5

1.0 1.0

0.5 0.5 Permit Permit Values ($ Billions)

Permit Permit Values SA) ($ Millions, 0.0 0.0 2007 2009 2011 2013 2015 2007 2009 2011 2013 2015

L.A. County Balance L.A. City L.A. County Balance L.A. City Source: California Homebuilding Foundation Source: California Homebuilding Foundation

City of Los Angeles: A Comparative Analysis 23 Beacon Economics Comparative Analysis

Demographics Population

Sustained population growth in Los Angeles County Population Growth is a testament to the strength of the local econ- City of Los Angeles and Los Angeles County Balance, 1990 to 2017 omy. Based on California Department of Finance esti- 120 mates, 10.2 million people resided in the county as of 115 January 2016, representing a net population gain of 43,758 from the prior year. The City of Los Angeles 110 has been a disproportionate contributor to popula-

tion growth and has accounted for more than one in 1990 in = Index 100 105 two residents added since 2010. It has outpaced the rest of the County with a growth rate of 6.3% during 100 that time compared to 3.1% growth in the rest of the 1990 1995 2000 2005 2010 2015 County. L.A. City L.A. County Balance Source: California Department of Finance Population gains have been primarily fueled by strong rates of natural increase and overseas migration. However, more domestic residents have been leaving than entering the County for years. Based on 2015 Census data, half of the 377,500 people estimated to have left the County over the last year remained in the state. Most moved to other counties in Southern California where costs of living are lower; net migration flows were the strongest to the Counties of San Bernardino (+22,100) and Riverside (+9,700). Popular out-of-state destinations included Clark County, Nevada (+14,400) and Maricopa County, Arizona (+6,700).

Age Distribution (% of population), 2015 Age 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 3.1 L.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 3.2 Long Beach 474,172 13.3 12.6 15.7 16.1 13.1 13.0 9.3 4.3 2.5 Anaheim 350,738 14.0 13.3 17.2 14.7 14.6 11.7 7.3 4.1 2.9 Santa Ana 335,423 16.2 15.2 17.2 15.4 12.8 11.0 6.7 3.5 2.1 Riverside 322,423 13.8 14.3 19.5 14.5 12.0 11.3 7.9 4.4 2.3 Source: American Community Survey Migration Net domestic outmigration increased over the last year, resulting in domestic losses of 71,730 County residents. This is well below levels seen in the 2000s, however, when annual average net outmigration was 112,600. Much of outbound migration is probably fueled by high costs of living relative to wages; the Census Bureau’s 2015 American Community Survey data indicates that County median rents amounted to 35.2% of median household incomes. This trend is not unique to Los Angeles County, as high costs of living in job centers across the state have been fueling migration 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 current expansion. 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

City of Los Angeles: A Comparative Analysis 24 Beacon Economics Comparative Analysis

(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 years to come.

The ethnic make-up in the City of Los Angeles more or less mirrors the rest of the County, with Hispanic residents leading 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 Los Angeles has a lower representation of Hispanics than the Cities of Santa Ana, Anaheim, and Riverside. The largest apparent disparity between the ethnic break-out in the City of Los Angeles and the rest of Los Angeles County lies in the representation of the Asian population. They make up 15.6% of residents outside of the City and 11.4% within City boundaries. At 8.8%, Black residents are also more strongly represented within the City of Los Angeles than in the balance of the County, as they are in every major Southern California city except Long Beach.

Education City residents also show greater educational polarization than residents in the balance of the County. Residents with less than a high school diploma or with a bachelor's or higher degree are better represented in the City than the balance of the County. It follows that residents with educational attainment levels between these two extremes are less represented in the City (21.6%) than in the rest of the County (24.5%). The representation of City residents at both ends of the spectrum is high, even compared to other large cities in Southern California. The only comparison city with 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 representation of residents with a bachelor’s or higher degree than residents of the County of Los Angeles.

Educational Attainment (% of population), 2015 Education Level Less than Some High School Some Associates Bachelors Advanced Location 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 10.8 L.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 17.4 Long Beach 303,981 11.9 8.7 18.7 23.3 8.2 18.8 10.4 Anaheim 220,383 13.5 10.7 23.3 21.5 6.3 17.7 7.0 Santa Ana 196,555 28.5 16.7 22.7 15.7 4.8 8.3 3.3 Riverside 188,559 10.6 10.9 24.9 24.0 7.4 13.1 9.1 Source: American Community Survey Differences in educational attainment rates are a reflection of slightly higher levels of employment opportunities at opposite ends of the educational spectrum in the City of Los Angeles. In terms of location quotients comparing occupational concentration in the City relative to the balance of the County, certain careers are more prevalent among City residents than County residents, notably life, physical, and social science occupations; food service and preparation occupations; and arts and entertainment occupations.

City of Los Angeles: A Comparative Analysis 25 Beacon Economics Comparative Analysis

Racial/Ethnic Identity (% of population), 2015 Location 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 48.7 L.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 30.1 Long Beach 470,237 28.1 12.5 0.3 12.7 0.9 3.2 42.0 Anaheim 345,578 26.7 2.2 0.1 15.8 0.4 1.7 53.1 Santa Ana 333,268 9.2 1.0 0.1 10.6 0.2 0.6 78.2 Riverside 316,335 31.8 5.5 0.5 7.0 0.3 2.9 51.8 Source: American Community Survey Household Although birth rates have been driving growth in the County as a whole, skyrocketing costs of housing and limited space present more obstacles to family formation in the City than outside of it. Consequently, the City of Los Angeles has a relatively low mean household size compared to the County as a whole, regardless of whether the household owns or rents the home. In 2015, the average household in the City consisted of 2.86 people, compared to 3.04 for the entire 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% of the population.

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

City of Los Angeles: A Comparative Analysis 26 Beacon Economics Comparative Analysis

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