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Shutdown of Central Los Angeles Highway Threatens Higher Logistics Costs, Lower Property Use

Interstate 10 Indefinitely Closed Near Downtown Los Angeles As Workers Asked To Stay Home

Shutdown of Central Los Angeles Highway

A roughly mile-long stretch of Interstate 10 near downtown Los Angeles has been closed in both directions after a fire broke out underneath the freeway on Nov. 11. (Getty)

By Jack Witthaus

CoStar News

November 13, 2023 | 2:26 P.M.

One of America's busiest highways has been closed near downtown Los Angeles in what real estate analysts say may result in increased logistics costs and in reduced demand for nearby office and industrial space.

A fire on Nov. 11 beneath Interstate 10 has shut the highway for about a mile in a stretch that handles roughly 300,000 vehicles daily, according to a statement by the city of Los Angeles. The closing is indefinite and is resulting in commuters and truck drivers seeking alternative routes, sparking fears among government officials of increased traffic congestion around America's second-biggest city.

Some government officials have compared the shutdown to the 1994 Northridge earthquake, which caused part of Interstate 10 to collapse and resulted in an uptick in traffic on the surrounding roads for months. Gov. Gavin Newsom declared a state of emergency on Saturday in response to the freeway's fire.

"Losing this stretch of the 10 freeway will take time and money from people's lives and businesses," Mayor Karen Bass said in a press conference Monday morning.

Interstate 10's indefinite closing is a concern for industrial real estate in Los Angeles, as goods coming from the ports of Long Beach and Los Angeles, the nation's busiest, move through the city's railways and highways to the rest of the country. Still, industrial analysts said truck drivers have plenty of options to get around the closed section, including the 710 and the 5 freeways. In addition, many of the negative effects on industrial real estate likely will be felt immediately around Interstate 10, analysts said.

Roughly 20 million square feet of industrial space is located within 1 mile of the closed freeway, said Rafael De Anda, associate director of market analysts for CoStar Group in the Los Angeles office.

Trucking Delays

Rerouting truck traffic may cause a slight uptick in labor and freight costs as the closing persists, JLL Managing Director Mark Vanis said.

"If you displace hundreds of thousands of commuters there will be delays on industrial routes," Vanis said.

Leasing demand for industrial space also may be curtailed immediately next to Interstate 10, said Chris Tolles, executive managing director of Cushman & Wakefield. Still, Tolles said that may affect only a small number of deals.

In the long term, real estate values won't fall because of a short-term closure, and the slowing of leasing demand around the freeway is expected to only occur during the shutdown's duration, Tolles said.

Some downtown Los Angeles businesses advised employees to work from home as these firms sort out the full effect of Interstate 10's closing. In addition, Bass said she was encouraging remote work instead of commuting on Los Angeles' freeways.

Downtown Los Angeles is the biggest office market in Los Angeles County, with roughly 70.8 million square feet of space, according to CoStar data.

The effects could be muted by the fact that fewer workers have been coming downtown since the pandemic due to the adoption of remote work. In addition, economic uncertainty has led to the lessening of leasing demand in downtown Los Angeles and across greater L.A. Office vacancy is now hovering around19% in downtown Los Angeles, a 10-year high, according to CoStar data.

Ryan Patap, senior director of market analytics for CoStar Group in Los Angeles, said there may be a near-term pause for office leasing demand to get a sense of when Interstate 10 will reopen. However, he said that the long-term factors, from hybrid work to crime perceptions, persist in hurting office space demand in downtown Los Angeles.

"Those are still far more important than this shutdown," Patap said.

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