Why You Shouldn’t be Waiting for Google
I posted a blog a few days ago on why inventory should come back in a big way in Playa Vista at some point. One of the reasons is that investors are waiting for Google corporate offices, expected in mid-2018 to open up before selling. This post has resulted in some comments and there are differences of opinion on the matter. Therefore, my rationale for not expecting the long-anticipated arrival of this tech giant to be another boon for values in the area deserves a post of its own.
1.) Google demand is already mostly baked into the market. The market has been going up consistently since the Google announcement in late 2014, which caused an immediate surge in values and depletion of inventory. That surge was mostly anticipatory demand. It is as if Apple, Inc. announced that earning for the 1st quarter of 2018 is expected to be X. The stock price reflects this guidance in anticipation of its earnings. The market may even overestimate the value since that number is only a prediction. Either way, in an efficient market, 3 1/2 years lead time is certainly enough for the market to have adjusted to meet the new demand expectation, therefore another surge once the event actually arrives is not likely.
2.) Just like many other people in LA commute to work, not all Google employees are going to live in Playa Vista, especially if there are relative values elsewhere. While Playa Vista will be a desirable and convenient community for many of these highly-compensated executives, many will choose to live in other neighborhoods for reasons other than proximity to work. Many others who are relocated to Los Angeles from another area may choose to rent for a while.
3.) Many investors I have talked to want to hold until Google offices open up. Many other investment-minded residents I have spoken to are holding off for this reason. When they finally decide to sell, this could flood the market with inventory or at least bring it back to reasonable 2-3 month levels. Additionally, there is pent up supply from non-investor residents due to the current inventory environment. As inventory shakes loose from the investors or investment-minded owners who most likely will be cashing out or moving out of the area, more non-investors who wish to relocate within Playa Vista will have the confidence to list their home with the expectation they will be able to find and acquire a new place.
4.) The market is due for a correction in general or will be soon. Real estate is cyclical and the current appreciating cycle has been 6 years and has been a sharper than average up-swing in Playa Vista. Affordability is becoming a challenge and I am seeing fewer and fewer offers on mid-upper range properties. There’s also the potential for tax reform to create disincentives to purchasing real estate in high cost, high local tax markets similar to ours, further weakening demand. This has been a supply-driven market for a while. There’s enough demand to sell the currently sparse inventory, often above asking price. When a reasonable level of inventory comes back, the results may be surprising.
Playa Vista has really come into its own as a premier LA neighborhood this decade. We have added a great new elementary school and middle school coming soon, many new restaurants, an upscale shopping marketplace, a movie theater, Whole Foods, and lots more high-end housing. This has benefited the residents of this once sleepy new development in terms of amenities as well as home equity. It is unwise to expect the goose that lays the golden eggs to keep doing so forever or to expect the search engine/tech giant that we have known is coming to town for over three years to do the same.