Real Estate Partner Kevin Sher took part in the L.A. Times Studios' Southern California Commercial Real Estate Trends Roundtable, where he was one of three leading industry experts to share his thoughts on the current state of the market.
Q: With the new administration, do you think market conditions are likely to worsen, improve, or stay the same?
I represent some commercial retailers who have had to retool 2025 budget forecasts, pause growth plans for new store locations and reassess existing vendor contracts rapidly this first quarter, all due to the uncertainty created by the tariffs under the current administration. A few are waiting to reassess strategic plans until this summer when President Trump's 90-day pause on higher-band tariffs for most countries, other than China, is set to expire. Even if tariffs are rolled back or trade deals are reached at the end of such 90-day period, 2025 may, at best, be a reset year for the retailers and, at worst, be a year of declining growth and decreased revenue, in a retail sector that around Los Angeles had been showing signs of life again after the challenges of the pandemic.
Q: What effects have the recent devastating wildfires had on the commercial market?
Commercial developers in Los Angeles County have already started experiencing extended delay periods for activating electricity in otherwise completed projects. With the rebuilding efforts in Palisades and Eaton still in nascent stages, the required future marshalling of resources in local planning and building departments and utility companies (such as LADWP and SoCal Edison) for rebuilding these areas will likely result in further project delays for new development across the County, in addition to possible construction labor shortages and rising construction costs based on increased demand. When you add tariff-related cost increases into the mix, it may soon be a very costly and lengthy process to build (or rebuild) anywhere in and around Los Angeles County.
Q: How are landlords and developers adapting office properties to attract tenants in a post-pandemic landscape?
When you combine Class A office buildings, amenities like gyms and dog-friendly spaces and dynamic walkable areas with high-end retail and residential in close proximity, then you have a great recipe for attracting office tenants. That is why places like Century City, Culver City and Playa Vista have extremely low office vacancy rates. Companies now understand, more than ever, the value of bringing employees back into the office for collaboration, training and morale. However, some are seeking co-working spaces or smaller office footprints in these activated office markets. One sign of the times in my practice has been my increasingly frequent negotiation of dog-friendly lease riders for my landlord clients as an incentive for office tenants and their employees.
Q: Are we seeing a continued slowdown or some growth in industrial development, particularly in areas like the Inland Empire?
In 2024, the Inland Empire added over 20 million square feet of new industrial space, exceeding post-pandemic demand in the market and increasing vacancy rates. Development has therefore decreased, and there is presently a 10-year low in new industrial construction levels. Recent changes in state law may further decrease industrial development. On January 1, 2026, California Assembly Bill No. 98 goes into effect, regulating new warehouse construction and operations for industrial properties that are 250,000 square feet or larger. With the required buffer zones and setbacks from residential areas under the new law and the restrictions on truck routing, finding compliant locations for warehouse development in the Inland Empire and across many parts of California will become more challenging.
Q: What role is public policy, zoning changes, and local government playing in shaping the future of commercial real estate in Los Angeles?
Industrial real estate is being shaped by the affordable housing
crisis in the City of Los Angeles and surrounding areas. The State
of California, from a public policy standpoint, adopted quotas for
locating additional residential units in each jurisdiction's
Housing
Element; however, in many cases, it is not practical to find
additional suitable areas for affordable housing development within
a city's limits. Since voters in single-family residential
areas loathe to permit more density in their neighborhoods, cities
have taken to re-zoning industrial areas through changes to their
General Plan. Because rezoning an updated General Plan can be
accomplished by publication without direct notice to affected
industrial property owners, we have had clients discover after
passage of a new General Plan that their properties have been
rezoned for theoretical housing use. Their current uses are now, or
will soon be, legally non-conforming.
Q: How do we solve the unintended consequences of Measure ULA on real estate development in the city of Los Angeles?
The UCLA Lewis Center for Regional Policy Studies recently published a report entitled the "Unintended Consequences of Measure UCLA," providing evidence that Measure UCLA, while billed as a "Mansion Tax" and raising tax revenue for affordable housing, is also frustrating commercial, industrial and multifamily development and drastically reducing transaction volumes in the city of Los Angeles. Less development and lower sales volume paradoxically mean that fewer new affordable housing units are likely to be constructed, and less money will be raised, frustrating the core purpose of Measure ULA. Because Measure ULA included limits on the City Council's power to amend it, we need either action by the State or a new City ballot measure to address needed reforms, such as exempting commercial properties or not applying the tax to properties that have been recently reassessed for property tax purposes (since such properties are already contributing to local coffers with taxes based on market value).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
