The Palisades and Eaton wildfires raging across Los Angeles are among the most devastating and destructive on record. More than 40,000 acres and 12,300 structures have been destroyed by the event, with as many as 200,000 residents under evacuation orders and warnings, according to the U.S. Geological Survey’s recent statistics.
While residential real estate has taken a beating throughout the region, a special report by Marcus & Millichap examined the impacts of fires on commercial real estate. Perhaps unsurprisingly, local hotel demand has increased, with occupancy up by as much as 1,200 basis points (bps) in areas affected by the blaze. “The increase in bookings may raise the county’s monthly occupancy rate above the low 60% threshold, where it held during January 2024 and 2023,” the report’s authors said.
The report lists other possible CRE impacts:
Increased demand for apartments. Unfortunately, multiple homeowners and renters have been displaced, which could lead to an increased demand for apartments. Apartment vacancy rates in impacted submarkets already ranged from 4.9% to 5.6% before the fire. This could mean that “some displaced households may have to look outside their communities for rentals,” the report said.
Greater need for community retail. The report said that retailers in affected submarkets whose stores were undamaged could see an influx of customers, especially those “in and proximate to Pacific Palisades and Malibu.” The same could be said of retailers in Altadena, CA, along and near Lake Avenue, where multiple storefronts were destroyed.
Challenges for construction. Due to site-clearing and massive rebuilding efforts, construction resources could be diverted from elsewhere. The report indicated a challenge to local labor availability. Building materials costs will also increase. Furthermore, “the anticipated influx of project proposals could also translate into a backlog of building permits awaiting approval, impacting prospective developments elsewhere in the metro,” the report said.
Insurance problems. New insurance policies might become less available. And those that are available could cost much more. The report noted that increasing premiums and fewer providers could impact investment strategies and homebuying activity. “This dynamic could increase the local rate of net out-migration already apparent,” the report added.