From Restaurants to Retail: Businesses Flock to Downtown Los Angeles

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Cities: LA 3, scape

In the past 15 years the neighborhood of downtown Los Angeles has seen a dramatic rise in the number of businesses that have decided to open up shop downtown. But what is driving this dramatic rise in demand for businesses to open downtown? Definite signs of gentrification have been seen, and the catalyst of this movement is in large part due to the creation of the Staples Center in 1998. According the official Staples Center website, this multi-purpose stadium hosts over 250 events and around 4 million visitors a year, an outstanding number of people to see the revitalized downtown neighborhood. Before the completion of the arena, downtown was best known for the juxtaposition of skid row and financial businesses in the financial district. In the early 1990’s, banks located in downtown began to consolidate and merge their offices, thus creating empty office buildings and spaces throughout the neighborhood.

Los Angeles is a city that, despite the economic woes of its state, can be seen as a beacon of hope with a global interest. This sentiment has become increasingly more evident with the construction of the Wilshire Grand building that is owned by Korean Airlines. The Wilshire Grand building will become the eighth largest building in the United States, once completed. And as an economic indicator of a city, the more skyscrapers and tall buildings a city has, the healthier its economy is. That is not always true, but in this case it demonstrates that Los Angeles, and the booming downtown, want to compete on a global scale. Sure, the rebuilding of the downtown neighborhood has been a slow process since the late 1990’s, however, according to Nate Berg, “many in the city are hopeful that the Wilshire Grand is part of a new wave of investment downtown that will help the city compete internationally” (Nate Berg, The Guardian). It seems as though Nate’s sentiments are justified in terms of the investments being brought to the neighborhood, when there are plans for chains like Whole Foods, retailers like Urban Outfitters, and several local restaurants who have decided to expand to the downtown area.

Cities: LA 4, graphic

In order to put the rise of downtown in the context of data, towards the end of 2013, “Six parking lots in downtown Los Angeles recently sold for $82 million” according to Dawn Wotapka of the Wall Street Journal. A staggering amount of money for some parking lots that have plans to be turned into an apartment complex. This is just one deal of many that have transpired over the past 15 years, and the figures seem to keep rising.

However, the other side of this story is the issue with occupancy rates, and whether or not there are too few apartments or too many people. Wotapka reports that “With more people flocking downtown, the vacancy rate for apartments has fallen. In the third quarter, downtown Los Angeles had a vacancy rate of 3%, down from 3.3%” Along with the dropping vacancy rates in downtown, which means in increase in demand, the consequence is that the average price of rent jumped almost 4% in the final quarter of 2013.

To shed more light and data  on the rise of housing in downtown, Wotanka found “There are about 14,000 apartment units in downtown Los Angeles. About 5,100 units are under construction, and more than 3,400 units were built between 2008 and 2013, according to Polaris Pacific, a real-estate sales, marketing and research firm. More than 3,000 additional rental units have been approved, with another 7,000 proposed. Meanwhile, there are only 17 condo units for sale and 68 under construction.”

Although there are some concerns that there has been such a vast amount of investment for housing downtown that we could see a drop in prices, the consensus among real-estate executives is that the demand will still stay fairly constant and strong. This prediction is justified by a recent report on the diminishing availability of apartment buildings and the relationship with rent prices. Since 2010, rent in the downtown neighborhood has increased by an outstanding 18.2% and is still predicted to grow because of the strong demand.

Another major indicator of the downtown area boom, although it may seem trivial at first glance, is the addition of Whole Foods to the flourishing neighborhood. The development of a Whole Foods in downtown serves not only high-priced, fair trade organic groceries, but as a symbol of the seriousness of downtown as a vital area in Los Angeles. As David Pierson of the Los Angeles Times reports, he calls it “a major development in the neighborhood’s gentrification efforts.” He is not the only one praising the development of the high end grocery store with City Councilman Jose Huizar recently stated “”Downtown Los Angeles is like a city within the city that needs a diverse range of services – including grocery stores,” Huizar said in a statement.  “Bringing Whole Foods Market to downtown is long-awaited news that represents a major coup.”

But Whole Foods is not the only tremendously successful chain that has chosen to explore the downtown area, the recently remodeled United Artists Building now called the hip Ace Hotel provides another example of what downtown has become. With locations in London, New York, and Panama to name a few, the expansion to the downtown area exemplifies the “hip” and “young” vibe that the area now exudes.

Downtown has made tremendous strides and has hurdled many obstacles to get the state that it is in today, and many real estate executives believe that the best has yet to come for this burgeoning neighborhood. With rising rents and diminishing vacancy rates, an interesting few years are expected to come in the housing market, with several apartment complexes to be completed. However, in retrospect, you have to look back to the addition of the Staples Center and the subsequent development of L.A. Live as the genesis of this downtown explosion.

 

Sources: http://www.theguardian.com/cities/2014/feb/14/world-largest-concrete-pour-la-trucks-los-angeles, http://www.aegworldwide.com/facilities/arenas/staplescenter, http://online.wsj.com/news/articles/SB10001424052702304281004579220210670242326, http://articles.latimes.com/2013/jul/31/business/la-fi-mo-whole-foods-downtown-20130731,

Need a Lyft? Ride-sharing and the Rise of Collaborative Consumption

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My girlfriends and I with Lyft's famous pink mustache

My girlfriends and I with Lyft’s famous pink mustache

It is Saturday night. You and your friends are planning to go downtown for a few drinks. Instead of calling a cab, someone takes out her Iphone and books a ride with Patrick. He has a friendly smile, a five-star rating, and a white Toyota—with a pink mustache.

Lyft is a ride-sharing app that markets itself as “a friend with a car.” The economic transaction is more than just an exchange of service; it’s an experience. The app is free and syncs to your smart-phone. At any point in time, you can open up the app and hail a friendly Lyft driver around the area.

You enter the car, give the driver a fist-pump, and he or she entertains you with a friendly conversation as you are dropped off at your location. The transaction is processed by Lyft so you avoid the awkward paying and tipping process. Lyft raised $60 million in its third round funding last May with venture firm Andreessen Horowitz and company has grown to be available in 22 cities.

According to TechCrunch, Lyft is currently growing at a faster pace than its main competitor, Uber, with a 6% growth rate disclosed my its co-founder, John Zimmer (TechCrunch). Lyft has especially been popular especially with the tech-savvy and thrifty Millennial generation. Katherine, a college student from California, says it has to do with convenience and saving money.

“I use Lyft because it feels more personal and I feel like I can trust the drivers more. Plus it’s convenient to find a car from an app on my phone – I never know which number to call for a taxi or what service is better than another. Plus it’s cheaper. A ride to downtown via taxi can be $14, while using Lyft, I can get a rate as cheap as $8.”

If we dive further into the success of Lyft, we can find there are multiple economic forces at play. The first is the economic recession. In tough times, people are gathering part-time jobs to make ends meet. For instance, Patrick started Lyft to make more money on the side.

“I needed a second job to help pay some bills and also to help save up for grad school. I do see myself doing this long term because I can make some extra cash and not have it interfere with my regular work schedule.”

In every transaction, Lyft gets 20% of the cut. There are also “Prime Time Tips,” that escalates rates during high-demand periods (i.e. 11pm on a Saturday night). These tips can go as high as 70%, but the entirety of the increase goes to the drivers. Lyft gets to bypass the system by asking for “donations” rather than charging “fares.” The legality of this is as fuzzy as Lyft’s iconic pink mustache, evidenced by the app’s ban in certain cities like Seattle. However, this does not mean Lyft does not take safety seriously. In some aspects, Lyft’s screening process is harsher than some taxi companies, with higher standards on criminal records, and linking your Facebook for safety and providing insurance of up to $1m for the drivers. The car also has to be clean and presentable.

Another economic factor is proliferation of mobile technology. “There’s an app for that” is a common slogan in response to every day problems. Technology of apps and mobile phones have allowed companies like Lyft to reduce transaction costs. People are able to conduct business with private individuals rather than a chain. Perhaps ironically, through innovation, our generation is reverting back to a peer to peer localized model. People have referred to this phenomenon as the sharing economy, or collaborative consumption.

Rachel Botsman, the co-author of What’s Mine Is Yours: The Rise of Collaborative Consumption, talks about how technology is enabling trust between strangers, and this concept of collaborative consumption is a “powerful cultural and economic force reinventing not just what we consume, but how we consume.” Botsman writes collaborative consumption is a class of economic arrangements in which participants share access to products or services, rather than having individual ownership.

Named as one of TIME’s 10 ideas that will change the world in 2011, the concept of collaborative consumption has proved it is a force to be reckoned with. Botsman co-wrote the book in 2010, and since then, the concept has taken the app world by storm, with giants like Airbnb, Uber and Lyft rounding billions from venture capitalists. However, this new concept is disrupting the economic system. In Lyft’s case, the service is a huge threat to the taxi and limo service industry. Formally trained drivers who are screened in a testing and licensing system are now competing with normal civilians. In essence, the barriers to entry to the transportation industry has been compromised.

There has also been tensions between governments and the new model. In 2012, the California Public Utilities Commission issued “cease and desist” letters to Lyft along with other similar services. Although the knee-jerk reaction may be the issue of safety, there are many factors contributing to the debate of this new business model. Taxi and limousine companies who once enjoyed monopolies are heavily lobbying against legalizing these services. In addition, many cities rely on the regulation fees these companies pay to operate, fees private ride sharing programs are not obliged to pay.

“To me it’s a really dumb debate,” Patrick says.

“The real concern for the state of California and other states that Lyft operates in is that they see private ride sharing programs as entities that are taking money from them. They hide under the issue of safety, but their arguments are based off of taxi companies having to pay fees regulated by the state while private ride sharing programs do not. How does that equate to being concerned about passenger safety? It’s really ridiculous.”

The issue of safety is always brought up in these debates. However, it seems like Millennials have more faith in strangers. Katherine says “the idea of communicating even with a stranger online isn’t quite as daunting anymore.”

“There’s a growing inherent trust between young people in this generation (twenty-somethings), so doing things like calling a cab or organizing a ride share through an app or online service doesn’t seem so out of ordinary, and most don’t think anyone is trying to scam them.”

Patrick says the age of his passengers range from 21-45, which is consistent with the wide belief ride-sharing is embraced mostly by the Millennial generation. Botsman asserts that we now live in a global village, and there is a new importance of reputation. In Lyft’s case, transactions are followed by a rating system, from these reviews these drivers and users leave a trail. If you average less than 4.5 stars, you are in danger of being dropped. Our ability to collaborate is quantified into a form of “reputation capital,” and it is put in public display, and ultimately determining our access to collaborative consumption.

Last September, the State of California became the first state to regulate ride-sharing, or what is now newly dubbed as “transportation network companies.” Depending on how these new rules perform, other cities may follow the California framework in the future.