Document Palmdale_doc_462c0083e3

Palmdale High Speed Rail Station Area Plan Real Estate Demand Projections & Preliminary Real Estate Strategies Prepared for City of Palmdale October 24, 2016 Revised March 17, 2017 ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 2 TABLE OF CONTENTS 4 Demand Analysis Framework 4 What is Placemaking? 6 Study Area Weaknesses, Opportunities, and Threats (SWOT) 6 CHAPTER 1. DEMAND PROJECTIONS 8 1.1 Office Market Demand 8 Study Area Office Market SWOT 8 Office Market Demand 9 1.2 Residential Market Demand 12 Study Area Residential Market SWOT 12 Residential Market Demand 13 1.3 Retail Market Demand 16 Study Area Retail Market SWOT 16 Retail Market Demand 17 1.4 Hospitality Market Demand 20 Study Area Hospitality Market SWOT 20 Hospitality Market Demand 21 CHAPTER 2. POTENTIAL INTERVENTIONS 24 2.1 Opportunity 24 2.2 Preliminary Strategy 26 Supportable Office Development 28 Supportable Residential Development 29 Supportable Retail Development 30 Supportable Hospitality Development 31 2.3 Next Steps 31 APPENDIX: CAPTURE RATES 32 International Case Studies 32 National Case Studies 33 Demand Model Capture Rates 34 ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 3 LIST OF FIGURES Figure 1.1. Study Area Capture Scenario Assumptions 5 Figure 1.2. Study Area SWOT 7 Figure 1.3. Office Market Comparison (2015) 8 Figure 1.4. Study Area Office SWOT 8 Figure 1.5. Office Capture Scenario Assumptions 10 Figure 1.6. Housing Affordability Comparison (2015) 12 Figure 1.7. Study Area Residential SWOT 13 Figure 1.8. Residential Capture Scenario Assumptions 14 Figure 1.9. Study Area Retail SWOT 17 Figure 1.10. Retail Capture Scenario Assumptions 18 Figure 1.11. Location of Midscale and Above Hotels in Palmdale and 20 Figure 1.12. Study Area Hospitality SWOT 21 Figure 1.13. Hospitality Capture Scenario Assumptions 22 Figure 2.1. Major Publicly-Owned Land Parcels in Study Area 24 Figure 2.2. Major Vacant Land Parcels in the Study Area 25 Figure 2.3. Public-Realm versus Private-Realm Oriented 26 Figure 2.4. Phased Development Example (Bay Meadows in San Mateo, CA) 27 Figure 2.5. Supportable Office Development Character 28 Figure 2.6. Supportable Residential Development Character 29 Figure 2.7. Supportable Retail Development Character 30 Figure 2.8. Supportable Hospitality Development Character 31 LIST OF TABLES Table 1. Office Demand Projections 11 Table 2. Residential Demand Projections 15 Table 3. Current Retail Gap (Top Five Categories) 16 Table 4. Retail Demand Projections 19 Table 5. Hospitality Demand Projections 23 Table 6. Three Phase Development Process 26 Table 7. High-Speed Rail Impact on Metropolitan Population Growth 32 Table 8. Placemaking Employment Growth Distribution 33 Table 9. Demand Model Assumptions 34 ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 4 INTRODUCTION The City of Palmdale sits on the urban fringe of Los Angeles, and is experiencing robust population and employment growth. According to the U.S. Census Bureau, the City of Palmdale gained almost 42,000 people between 2000 and 2015, and over 11,000 jobs from 2002 to 2014. Much of this growth is taking place on Palmdale’s periphery. High-speed rail (“HSR”) provides an opportunity to focus a portion of future growth toward the urban core while also improving the Study Area. The previous Economic Existing Conditions report surveyed the market performance of retail, office, residential, and hospitality uses in Palmdale and the HSR Study Area. Informed by the Economic Existing Conditions report, as well as an analysis of case studies, under separate cover, the following document includes demand projections for these major land uses (Chapter 1) and outlines a preliminary real estate strategy (Chapter The demand estimates presented in Chapter 1 benchmark the amount of growth that can be expected in the Study Area with varying levels of interventions by the City of Palmdale, including HSR. Chapter 2 includes potential interventions the City of Palmdale could consider to improve its position to leverage the future HSR station. Demand Analysis Framework The demand analysis framework assumes that the Study Area may be able to capture a greater share of anticipated regional development growth with key public interventions, including the HSR. The demand analysis evaluates four distinct demand scenarios listed below and summarized in Figure 1.1 on the next page: ▪ A baseline “business as usual” scenario; ▪ A placemaking scenario; ▪ A HSR scenario without major placemaking interventions; ▪ A HSR scenario with major investments in placemaking. The basis of the demand projections varies by real estate use. Office demand is based on future projected employment in the Antelope Valley. Residential demand is based on projected population growth in Palmdale. Retail and hospitality demand are based on resident and employment growth as estimated in the office and residential demand models. Projections of future employment and resident growth are translated into demand for each use in Palmdale and, as described in following paragraphs, the Study Area. Demand modeling under each of the four scenarios relies on the similar base projections, but, as discussed in the following paragraph, differ in the assumption about the location and concentration of future growth. Details of demand modeling by real estate use are discussed in further detail in Chapter 1 under the pertinent real estate use. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 5 The final demand analysis step is to estimate the Study Area capture rate, i.e. the share of office, residential, retail and hospitality uses that is likely to locate within the Study Area. The capture of future demand in the Study Area is based on a ‘baseline’ scenario that acknowledges that little recent development has occurred within the Study Area, but also assumes future desirability for development given freeway access from SR-14. The ‘placemaking’ scenario capture for the Study Area assumes that the Study Area, with public realm improvements and strategic planning, can capture a larger share of future growth relative to its current fair share of Palmdale’s office, residential, retail, and hotel space. This was benchmarked against national case studies of successful “Downtown” areas that grew their market share with major placemaking interventions. The capture of growth under the ‘HSR’ scenarios is based on observed metropolitan growth shifts seen in international case study cities from HR&A’s HSR literature review, and assumes the Study Area will gain a competitive advantage in attracting future growth due to the HSR station completion in 2029. See the Appendix for additional detail on the case studies and the model capture rates. Figure 1.1. Study Area Capture Scenario Assumptions Source: HR&A ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 6 What is Placemaking? Placemaking can include a wide variety of public actions, regulations, and strategies that promote the creation of places that are oriented towards a friendly pedestrian experience, emphasize walking and bicycling over driving, and offer pleasant public spaces that foster vitality and excitement. In the context of this study, placemaking can be defined as a series of public infrastructure and policy interventions that promote: ▪ A mix of uses to foster activity throughout the day and evening; ▪ An emphasis on public space over private space; ▪ Wide sidewalks; ▪ Pedestrian amenities such as shade trees and park benches; ▪ Buildings that are built out to the street and oriented to the public realm; ▪ Development that is dense enough to support local retail and other amenities; and ▪ Crosswalks at all intersections to allow pedestrian permeability. It should be noted that the termination of Redevelopment Authority has constrained public investments in placemaking across the State of California. In a subsequent task, HR&A will consider resources available through new and existing funding/financing tools to support placemaking. Potential tools to support placemaking available to Palmdale generally fall into three categories: direct city investments, regulations such as zoning and design guidelines, and strategic use of public land or other assets. Study Area Weaknesses, Opportunities, and Threats (SWOT) In addition to the location of the future HSR station, the Study Area has several advantages based on its central location in Palmdale along the SR-14 freeway corridor, the main transportation route connecting the Antelope Valley to central Los Angeles County. Despite these advantages, the Study Area has not shared in the robust growth currently taking place in Palmdale and the Antelope Valley, with much of the growth in Palmdale occurring on the fringes of the City. HSR service represents an opportunity to change this trend, and focus more of Palmdale’s future growth to the Study Area and give the City a unique and vibrant center of activity. Figure 1.2 on the next page summarizes the weaknesses, opportunities and threats to the Study Area in Palmdale. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 7 Figure 1.2. Study Area SWOT Source: HR&A Considering the general Study Area SWOT, the following chapter first describes the specific opportunities and challenges of each land use in the Study Area and then projects demand for each land use within the Study Area and describes the methodology used to reach this estimate. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 8 CHAPTER 1. DEMAND PROJECTIONS 1.1 Office Market Demand Study Area Office Market SWOT Office Market Opportunity The office market in Palmdale has not yet fully recovered from the effects of the recession, but certain sectors, such as medical office, have been performing well in the region. The Study Area access to SR-14 represents an opportunity to attract new office space in the near term, but the overall scale of office uses attracted to the Study Area over time will depend upon overall market conditions, as well as specific interventions made in advance of HSR service. Today, the office market in Palmdale competes with other locations in the Antelope Valley and the Santa Clarita Valley. Placemaking interventions and HSR could increase Palmdale’s office market share. In the longer term, HSR service can allow firms to relocate parts of their operations to more affordable office space and provide a lower cost of living for their employees in Palmdale while still maintaining easy access to the metropolitan core. Figure 1.3 below shows the difference in office rental rates and product types in Downtown Los Angeles, Burbank, and the Study Area. Figure 1.3. Office Market Comparison (2015) Source: CoStar, Google Maps. *Class A buildings have high quality standard finishes, state of the art systems, and above average rents. Figure 1.4, on the next page, summarizes the weaknesses, opportunities and threats to the Study Area office market in Palmdale. Figure 1.4. Study Area Office SWOT ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 9 Source: HR&A Office Market Demand According to CoStar, the current office space in Antelope Valley is just under 3.8 million square feet.1 There has been 500,000 square feet of office space developed between 2000 and 2016 in Palmdale while the Study Area has had no major new office buildings constructed during that same time period. This data reflects the current lack of developer interest in the Study Area. Methodology In developing the demand model for office space in the Study Area, the analysis considers both historic Antelope Valley employment growth from the Longitudinal Employer-Household Dynamic (“LEHD”) database maintained by the U.S. Census Bureau as well as Los Angeles County projections of future growth from the California Employment Development Department (“CA EDD”). Using these sources, we estimate employment growth in the Antelope Valley between 2016 and 2046 and estimate the share of office-using employment. An assumption of 300 square feet of office space per employee was used to translate future office-using employment growth into future office square footage.2 Next the share of office demand expected in Palmdale is estimated based on Palmdale’s existing proportion of Antelope Valley office space. 1 CoStar is a real estate data information service. 2 300 square feet per office employee is an industry standard assumption used in this analysis. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 10 The ‘Without HSR’ Scenarios (Low and High) are estimated using varying captures of Palmdale’s current proportion of Antelope Valley office space, as mentioned above. However, the ‘With HSR’ Scenarios (Low and High) assume new employment will be attracted to Palmdale and accounts for both an additional capture of the Antelope Valley office demand as well as a higher concentration of demand within the Study Area. Capture rates are applied to the base Palmdale demand (‘Without HSR’ Scenarios) and the higher Palmdale demand (‘With HSR’). The high scenarios in both the ‘Without HSR’ and ‘With HSR’ scenarios assume that there is successful placemaking interventions that create an attractive destination within the Study Area either in advance or after HSR. Figure 1.5. Office Capture Scenario Assumptions Source: HR&A Results Demand for office space in Palmdale is expected to grow in conjunction with continued employment growth in the Antelope Valley. Using the above methodology, the analysis estimates that office space in Palmdale will increase by approximately 2.3 million square feet across the next 30 years, based on Palmdale’s current capture. Despite projected growth, areas to the west of SR-14 as well as other areas of Palmdale will compete with the Study Area in capturing future office growth. The Low ‘Without HSR’ Scenario estimates the Study Area will capture a share of office equivalent to the current proportion in the Study Area, approximately 225,000 SF of this demand by 2045. The High ‘Without HSR’ Scenario assumes that the Study Area is improved and the expected capture almost doubles to 455,000 square feet. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 11 As HSR service begins, Palmdale is expected to capture an additional share of office demand from the Antelope Valley and the Study Area is expected to capture a greater share of Palmdale growth. In the Low ‘With HSR’ Scenario demand is expected to increase significantly to approximately 1 million square feet by 2045. With strategic placemaking interventions and HSR service in 2029, the Study Area becomes even more competitive at attracting Palmdale’s office growth, with cumulative demand in the High ‘With HSR’ Scenario approaching over 1.3 million square feet by 2045. Office demand results are summarized below in Table 1. Table 1. Office Demand Projections Source: HR&A, SCAG, CA EDD, LEHD ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 12 1.2 Residential Market Demand Study Area Residential Market SWOT Residential Market Opportunity Palmdale’s relative affordability and low cost of living, compared to other parts of central and coastal Los Angeles County, fueled substantial residential growth across the last three decades. According to the U.S. Census Bureau, over 10,000 new residential units were added to Palmdale between 2000 and 2015. While long term residential growth has historically been and is expected to remain robust, Palmdale and other regions of the Antelope Valley saw a significant slowdown in residential construction as a result of the last recession, and the residential market has yet to fully recover. The residential market in Palmdale is currently composed of 85 percent single-family homes and most recent residential construction in Palmdale has taken the form of master-planned suburban residential communities. HSR service represents an opportunity for the Study Area to attract new residents. Full operations of HSR will place the Study Area within approximately 30 to 38 minutes of Burbank and Downtown Los Angeles and presents a major opportunity to attract commuters from these major employment centers to live in Palmdale. Figure 1.6 demonstrates the relative affordability of Palmdale compared to Burbank and Downtown Los Angeles. With the right placemaking interventions in the Study Area, there is also an opportunity to offer a wider variety of housing typologies in a more urban and walkable format than is currently available in Palmdale. Figure 1.6. Housing Affordability Comparison (2015) Source: Google Maps, Trulia Figure 1.7 below summarizes the weaknesses, opportunities and threats to the Study Area residential market in Palmdale. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 13 Figure 1.7. Study Area Residential SWOT Source: HR&A Residential Market Demand Methodology Residential demand was projected based on existing households looking for a new unit (‘turnover’) in the City of Palmdale and new residents moving to Palmdale. Average Los Angeles County statistics on annual turnover3 and Palmdale household data by income distribution data were used to estimate the amount of income-qualified households in Palmdale likely to be in the market for a new residential unit each year. HR&A benchmarked the annual income necessary to afford to rent a new apartment or purchase a new home as $45,000-$75,000 for a new apartment and $45,000-$100,000 for a new for-sale unit. The annual income-qualified households looking for a new unit was then projected in future years by using forecasted population growth rates for Palmdale from SCAG. The estimates represent demand for both single family and multi-family units. The ‘Without HSR’ scenarios (Low and High) are based on varying captures of the Palmdale demand. The ‘With HSR’ demand scenarios (Low and High), on the other hand, assume that an additional layer of residents is attracted to Palmdale. Under the ‘With HSR’ scenarios, additional growth is captured from a 3 Annual turnover defined as whether or not a household moved within the last year. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 14 share of Downtown Los Angeles workers currently commuting over 30 minutes to work who will choose to live in Palmdale when HSR service begins in 2029. Capture rates are then applied to the Palmdale base demand for the ‘Without HSR’ Scenarios. Capture rates are applied to the higher Palmdale demand for the ‘With HSR’ Scenario. Low capture rates assume that there are minimal improvements to the Study Area while the high capture rates assume that there are significant interventions made in the Study Area that successfully create a better sense of places. Figure 1.8. Residential Capture Scenario Assumptions Source: HR&A Results According to the US Census Bureau, the City of Palmdale grew by 10,000 households between 2000 and 2015. Based on the methodology described above, we estimate that there are approximately 450 income- qualified households looking to move into a new unit in 2016. Using SCAG projection growth rates, we estimate that income-qualified households looking to move into a new unit each year in Palmdale will grow to 639 households (approximately 15,000 households across a 30-year period). This includes demand for both for rent and for-sale units as well as both multi-family and single-family units. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 15 It should be noted that there are over 1,000 current planned and proposed units located throughout the City. However, the bulk are in master planned communities outside of the Study Area. With little to no change from the status quo, the baseline scenario assumes residential growth continues to occur predominately on the fringes of Palmdale. New contracts in the aerospace industry will draw new residents and some that will locate in the Study Area, but this is fairly minimal in the Low ‘Without HSR’ Scenario at 1,630 units by 2045. With strategic placemaking investments—improved streetscape, connections, and the potential addition of a destination--the High ‘Without HSR’ Scenario assumes that the capture of new units doubles to 3,210 by 2045. When HSR service in 2029 opens, demand is expected to significantly grow within Palmdale, estimated at approximately 6,500 additional income qualified households between 2029 and 2045. These new HSR commuters may select to live anywhere within Palmdale, but, being attracted to Palmdale by the HSR, and with substantial vacant land available for development, many are likely to locate within the Study Area. The High ‘With HSR’ Scenario assumes that the placemaking interventions were successful and that the Study Area is highly desirable location within the City. The Study Area is expected to capture approximately 5,200 units in the Low ‘With HSR’ Scenario and upwards of 8,670 new units by 2045 with a much improved area. Market rate residential demand projections are summarized below in Table 2. Table 2. Residential Demand Projections Source: HR&A, ESRI, US Census Bureau, SCAG, REIS, CoreLogic ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 16 1.3 Retail Market Demand Study Area Retail Market SWOT Retail Market Opportunity The retail market in Palmdale is still recovering from the effects of the last recession, and rents for shopping center retail have recently begun to rise after falling consistently since 2007. Palmdale has significant retail available from numerous suburban-format power centers and community shopping centers located near residential neighborhoods as well as the Antelope Valley Mall. However existing retail centers typically provide more general merchandise-type retail and have a limited variety and quality of retail offerings. Table 3 on the right shows the current top five retail gap categories in Palmdale and the Antelope Valley as a whole. The retail gap estimates represent retail space that could be supported by local spending that is currently occurring outside each geography. Given access to SR-14, there is a significant opportunity for the Study Area to capture a share of spending for specialized retail and full-service restaurants that is currently occurring in other places, such as the Santa Clarita Valley. HSR service represents an opportunity to attract more residents and employees to the Study Area, and thus support more local retail. Figure 1.9 on the next page summarizes the weaknesses, opportunities and threats for retail in the Study Area. Table 3. Current Retail Gap (Top Five Categories) Source: HR&A. Data corresponds with retail gap in 2016. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 17 Figure 1.9. Study Area Retail SWOT Source: HR&A Retail Market Demand Methodology Retail demand was estimated based on the projected increase in households and new employees in the Study Area, Palmdale, and the Antelope Valley, as well as a capture of current Palmdale retail leakage. Per employee or per resident spending is first estimated by using local Palmdale spending data from ESRI. Residential and employment growth in the Study Area, Palmdale, and the Antelope Valley are based on projections developed in the office and residential demand models. Future growth in employees and residents is translated into demand for retail space by using ESRI estimates of the current Palmdale resident spending per person, adjusted International Council of Shopping Centers estimates of office worker spending, and retail sales per square foot of retail space from Retail Maxim, a third party real estate data clearinghouse. The low estimates for both the ‘Without HSR’ and ‘With HSR’ scenarios assume that placemaking interventions are not done and a unique urban destination is not cultivated, and thus the Study Area captures less of the retail spending from Study Area, Palmdale, and Antelope Valley residents. The Study Area also fails to capture any of the current Palmdale retail leakage in these scenarios. The high estimate for both the ‘Without HSR’ and ‘With HSR’ Scenarios assume that the creation of a unique urban destination in the Study Area can be a regional draw, increasing the Study Area capture of retail spending from residents in the Study Area, Palmdale, and the Antelope Valley. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 18 In addition to expected future growth in residents and employees for all scenarios, the high estimate for the ‘Without HSR’ and ‘With HSR’ scenarios assumes that providing retail in an urban format will allow Palmdale to close some of its retail gap through more unique and differentiated goods and services than are currently available in a general suburban shopping center. The ‘With HSR’ scenarios (Low and High) project more local residential and employment growth in the Study Area, which in turn supports more local retail growth. Figure 1.10. Retail Capture Scenario Assumptions Source: HR&A Results According to Costar, the City of Palmdale currently has approximately 6.2 million square feet of retail space, with 2.8 million square feet of this retail space added between 2000 and 2016. Retail development in Palmdale has typically taken place in shopping centers with close proximity to developing master planned communities outside of the Study Area. Since 2000, only 44,000 square feet of new retail has been delivered within the Study Area4. 4 CoStar (1Q2016). ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 19 With little to no change from the status quo, the Low ‘Without HSR’ Scenario assume areas located west of SR-14 freeway and locations nearer to new residential growth absorb most future retail demand in Palmdale, with only 268,000 square feet expected in the Study Area by 2045. However, with strategic placemaking investments—improved streetscape, connections, and the potential addition of a destination--the High ‘Without HSR’ Scenario assumes that the capture of retail space increases to 488,000 square feet by 2045. When HSR service opens in 2029, it will likely draw new employment and residents to the Study Area, but a lack of a unique retail destination within the Study Area will still mean spending from these new residents and employees will go to other parts of Palmdale outside the Study Area. Thus, the Low ‘With HSR’ Scenario only projects 443,000 square feet of retail space in the Study Area by 2045. The High ‘With HSR’ Scenario assumes that the placemaking interventions were successful and that the Study Area is a highly desirable location within the City. The Study Area is expected to capture approximately 773,000 square feet of new retail space by 2045 with a much improved area. Retail space demand projections are summarized below in Table 4. Table 4. Retail Demand Projections Source: HR&A, ESRI, Retail Maxim ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 20 1.4 Hospitality Market Demand Study Area Hospitality Market SWOT Hospitality Market Opportunity The current midscale and above hotel market in Palmdale and the Antelope Valley is strong with high rates of occupancy and new supply on the way. All major mid-scale and above hotels in Lancaster and Palmdale are located along the SR-14 corridor, as shown below in Figure 1.11. The Study Area’s proximity to the SR-14 freeway puts it at an advantage over other areas to absorb future hotel demand. Placemaking can help the Study Area compete with other freeway-proximate locations, and HSR service will bring new opportunities for hospitality development in Palmdale in terms of both hotel size and class. Figure 1.11. Location of Midscale and Above Hotels in Palmdale and Lancaster Source: Google Maps, STR, HR&A A majority of new midscale and above hotels in Palmdale have been built to the west of SR-14, just outside the Study Area. Figure 1.12 on the following page summarizes the weaknesses, opportunities and threats for hospitality in the Study Area. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 21 Figure 1.12. Study Area Hospitality SWOT Source: HR&A Hospitality Market Demand Methodology The main drivers of midscale and above hotel demand in Palmdale are business travel and visiting friends and relatives (VFR), and these are expected to remain the fundamental drivers in the Palmdale hotel market for the foreseeable future. Increases in employment and residential population will likely be the key drivers of future business travel and VFR room night demand, and thus Palmdale mid-scale and above hotel demand. STR data was used to estimate the demand for midscale and above hotel room nights per employee, and per resident, for business travel and VFR respectively. Similar to retail, demand for midscale and above hotel rooms is based on the projected resident and employee growth in the Study Area and Palmdale in the office and residential demand models. Future residents and employees are translated into an estimate of hotel room nights, based on benchmarks of current room nights supported by Palmdale residents (weekends) and employees (during the week). In the Low ‘Without HSR’ Scenario, it is assumed that the current pattern of Palmdale hotel development will continue, with most new hotels being built outside the Study Area to the west of SR-14. In the High ‘Without HSR’ Scenario, more hotels are drawn to the Study Area by the increasing attractiveness stemming from public realm improvements. In the ‘With HSR’ Scenarios (Low and High), business travelers using HSR becomes a major attractor of future hotel development in Palmdale, with more hotels locating within the Study Area. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 22 Figure 1.13. Hospitality Capture Scenario Assumptions Source: HR&A Results According to STR, Palmdale currently has 835 rooms in eight midscale or higher level hotels generally located near SR-14. Seven of these hotels, comprising 687 rooms, were built between 2000 and 2015. Under the Low ‘Without HSR’ Scenario, most hotel development still occurs to the west of SR-14, with demand for new midscale and above hotel rooms totaling 690 by 2045. In the High ‘Without HSR’ Scenario, the increase in the attractiveness and activity in the Study Area drives more of the future hotel development to the east of SR-14 in the Study Area, resulting in approximately 830 midscale and above hotel rooms by 2045. Growth in aerospace could also support other hotels, which is accounted for in our demand estimates. HSR service, beginning in 2029, will likely be a mode of choice for many business travelers heading to Palmdale. As such, the immediate HSR station area will become more attractive for future hotel development under the ‘With HSR’ scenarios (Low and High). Thus the ‘With HSR’ scenarios project approximately 1,140-1,280 midscale and above hotel rooms by 2045. Future concentrations of residential and office uses in Palmdale is not likely to have a strong effect on future hotel location, as most future hotel development in Palmdale is still expected to occur along the SR-14 freeway regardless of where residential or commercial growth occurs. Placemaking and HSR will, however, affect hotel class. Table 5 on the following page summarizes hotel room projections for the Study Area. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 23 Table 5. Hospitality Demand Projections Source: HR&A, STR ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 24 CHAPTER 2. POTENTIAL INTERVENTIONS 2.1 Opportunity Recent growth in Palmdale has taken the form of residential and retail developments on the fringes of Palmdale, and commercial development west of SR-14 freeway, leaving the Study Area as a “donut hole” with little recent development activity or investment. Before HSR service begins, the freeway adjacency of the Study Area will continue to be its main advantage. Residential or commercial development done in the right format, even along the freeway, could help to rebrand the Study Area and lead to further investments over time. To make station area development a reality, Palmdale can leverage already publicly-owned land at strategic locations within the Study Area. It should be noted that some of the City of Palmdale land is held by the Successor Agency to the City’s Redevelopment Agency, and must be disposed per the City’s Long Range Property Management Plan approved by the State Department of Finance. Given this requirement, this study and any following regulatory changes are key to influencing future development on these sites. Figure 2.1. Major Publicly-Owned Land Parcels in Study Area Source: ArcMap, City of Palmdale ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 25 In addition to the land under public control, vacant land is prevalent throughout the Study Area, and represents a major opportunity to implement station area development. Consideration should be given to how major public and private vacant land can be used strategically to further Palmdale’s vision of the Study Area and HSR station area development. Figure 2.2. Major Vacant Land Parcels in the Study Area Source: ArcMap, City of Palmdale ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 26 2.2 Preliminary Strategy HSR service is not projected to begin in Palmdale until 2029, and this project is an important opportunity to plan in advance for its arrival. Before service begins, Palmdale can engage in placemaking to create an urban node that can eventually take advantage of HSR service. Placemaking can make the Study Area more attractive to new office, residential, retail and hospitality users and allow the Study Area to capture a larger proportion of Palmdale’s future growth. Palmdale should consider three phases for Study Area development to fully capitalize on the future HSR station. Table 6. Three Phase Development Process Phase 1 Phase 2 Phase 3 Focus a portion of existing residential demand into an urban format along a grid in the Study Area, but not in the immediate HSR Station Area. This can start as small- lot homes or townhomes if denser development is not immediately financially viable. As the residential neighborhood builds out, begin mixed-use residential development that includes ground floor and neighborhood-serving retail that can be walkable to the future HSR station. When HSR service begins, focus commercial office development directly adjacent to the station while simultaneously reinstating a grid that connects to the existing urban node. Source: Google Earth Pro, DenverInfill.com As residential development builds out in the Study Area it will improve the real estate in the Study Area and generate demand for retail and other amenities. The second phase includes the addition of retail, services, and other amenities to the Study Area. This can be achieved in concert with continued residential growth. The retail node should not be located directly adjacent to the HSR station, but should be located close enough so that future development around the HSR station can take advantage of the node. This retail should, unlike typical shopping centers, be focused towards the street and public-realm rather than inward facing toward private space so as not to create an “island effect” that is typical of many lifestyle centers. Focusing retail towards the public realm supports other nearby real estate uses that can leverage their proximity and ease of access to goods, services, and retail amenities. Areas developed with retail should also have a mix of uses, either above the first floor of retail if viable or directly adjacent to it. As this initial urban-format retail node develops, it will act as a larger and larger magnet for the continued development of nearby residential uses. Figure 2.3. Public-Realm versus Private-Realm Oriented ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 27 Source: Google Earth Pro Land nearest the HSR station should be preserved for the most intense uses, likely commercial office with ground floor retail, until HSR service begins. Once HSR service begins in 2029 the third phase of Study Area development can begin. Mixed-use office space should be focused directly adjacent to the HSR station, and connectivity with the existing mixed-use urban retail node from the second phase should be ensured as part of this development. This allows office developments in the immediate station area to take advantage of both direct access to the HSR station and a vibrant mixed-use neighborhood with local retail amenities within an easy walking distance. It should be noted that development on both sides of the train right-of-way would benefit from improved east-west arterial connections proximate to the future high- speed rail station, such as Avenue Q. Once these three phases are underway, development can begin to proceed organically over time to build a true urban neighborhood, with incremental improvements to connectivity and the public realm as development occurs. Figure 2.4. Phased Development Example (Bay Meadows in San Mateo, CA) Source: Wilson Meany.com, HR&A ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 28 Supportable Office Development Creating a mixed-use destination can be attractive to local office users and HSR can be a draw for major regional employment near the station. Early office development in the Study Area is likely to be only one to two stories in scale and lower density. As the Study Area evolves with strategic public realm improvements, mixed-use office buildings of three to four stories may be feasible due to higher office rental rates. Upon HSR service in 2029, Class A office buildings with more than four stories and ground floor retail are more likely located adjacent to the HSR station due to rent premiums and increasing land values. Figure 1.14 illustrates potential future office development in Palmdale. Figure 2.5. Supportable Office Development Character Source: DenverInfill.com, Mapio.net, Simon.com, Mangano Company, CoStar ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 29 Supportable Residential Development Appropriate zoning and design guidelines can encourage a better sense of place even with single-family homes. Early residential development in the Study Area may have to be more in line with what the current market in Palmdale will bear, and thus may take the form of small-lot single family homes or townhomes. As development builds over time, and through placemaking investments, mixed-use residential development of 3-4 stories may become more viable. Once HSR service begins in 2029, buildings above four stories with different construction types may become financially viable. Figure 1.15 illustrates potential future residential development in Palmdale. Figure 2.6. Supportable Residential Development Character Source: Google Earth Pro, BayMeadows.com ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 30 Supportable Retail Development Initially, mixed-use development with ground floor retail may not be financially viable. Because there is not a significant residential base in the Study Area, early retail will still rely on patrons arriving via automobile and freeway-proximity will be critical. Despite this, early retail can be built to complement future mixed-use development by having entrances that face the sidewalk, with parking uses relegated to the back. Increasing the attractiveness of the Study Area through placemaking can aid in making mixed- use development financially feasible. Figure 1.16 illustrates potential retail future retail development in Palmdale as the Study Area evolves. Figure 2.7. Supportable Retail Development Character Source: HR&A, Google Earth Pro, UpstairsBethesda.com, ColumbusUnderground.com ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 31 Supportable Hospitality Development Hotel development will likely be midscale or upper midscale, similar to current hotel development, before HSR service, but once the service begins the HSR station will become a major draw to hotels looking to serve business travelers and other visitors to Palmdale. Over the long term the hotel market will continue to mature, and HSR can allow for larger and more upscale business-level hotels. Attracting upper upscale or luxury hotels may be possible if Palmdale creates a unique and attractive destination around its HSR station. Figure 1.17 illustrates the potential scale and format of future hotel development in the Study Area as it evolves over time. Figure 2.8. Supportable Hospitality Development Character Source: Google Earth Pro, AC Hotels 2.3 Next Steps The real estate strategies in this report are meant as a preliminary guide, and will be refined as the station area planning continues to move forward. As a next step, HR&A will begin work on a Value Capture and Financing Strategy, and will continue to refine real estate concepts for the Real Estate Strategy report. ▪ Market Analysis ▪ Case Studies ▪ Demand Analysis and Preliminary Real Estate Strategies ▪ Value Capture and Financing Strategy ▪ Real Estate Strategy ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 32 APPENDIX: CAPTURE RATES Model capture rates were developed with consideration of international and national research on the growth with HSR and placemaking improvements, respectively, as well as consideration of the City of Palmdale market and regional growth patterns. International Case Studies In addition to our detailed empirical observations from our case studies, HR&A conducted a review of academic literature on the spatial effects of HSR systems and examined four international case studies.5 Case study cities were selected that have HSR connectivity and a similar size, position in the urban hierarchy, travel time to a major metropolitan area, and other economic characteristics that provide some comparability with Palmdale. One of the most documented effects of HSR, both in the literature review and the case studies, is the increased station area concentration of economic activity and density of development. One particularly useful 2009 study, “High Speed Rail’s Effects on Population Distribution in Secondary Urban Areas,” analyzed the location of metropolitan growth in several European cities in the census periods before and after HSR service began. The study found that metropolitan (defined as a distance of 8.5 miles from the HSR station) growth shifted back to the station area (defined as a distance of 2.6 miles) once HSR service began, slowing the decentralization that had been taking place prior to HSR. The findings from this study are included below in Table 1. Additionally, using international census data, HR&A examined case study cities’ capture of regional growth beyond its metropolitan area before and after HSR service. HR&A considered the information below, as well as its relevance in the case of Palmdale, in generating demand model capture rates for high-speed rail scenarios. Table 7. High-Speed Rail Impact on Metropolitan Population Growth Source: Stanke, Brian. “High Speed Rail’s Effects on Population Distribution in Secondary Urban Areas.” MA thesis. San Jose State University, 2009. 5 Please see HR&A’s Economic Development Case Studies for a full description of findings and complete bibliography. ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 33 National Case Studies To better understand the economic impacts of the placemaking scenario, HR&A analyzed the location of employment and residential growth in several cities as a basis for estimating impacts in the City of Palmdale, focusing on those that had successfully created a vibrant urban area. Table 2 below includes results from HR&A’s analysis of other successfully vibrant Downtown cores. This analysis shows the share of employment growth captured in the central area relative to the metropolitan area between 2002 and 2014. HR&A considered this information in generating demand model capture rates for placemaking scenarios. Table 8. Placemaking Employment Growth Distribution Source: LEHD ---PAGE BREAK--- PALMDALE HSR Station Area Plan DEMAND PROJECTIONS & PRELIMINARY REAL ESTATE STRATEGIES 34 Demand Model Capture Rates The assumptions for demand modeling capture rates are included below in Table 3. Table 9. Demand Model Assumptions Source: HR&A Office Capture of projected demand from future: 5 Years (2020) 10 Years (2025) 20 Years (2030) 30 Years (2040) Low 10% 10% 10% 10% High 20% 20% 20% 20% Low 10% 10% 60% 73% High 20% 20% 60% 73% Regional Antelope Valley Employment Outside of Palmdale (to Palmdale) 0% 0% 16% 16% Residential Capture of projected demand from future: 5 Years (2020) 10 Years (2025) 20 Years (2030) 30 Years (2040) Low 10% 10% 10% 10% High 20% 20% 20% 20% Low 10% 10% 44% 44% High 20% 20% 73% 73% With HSR Regional Income Qualified Downtown LA Commuters Traveling 30+ Minutes to Work (to Palmdale) 0% 0% 2% 2% Retail Capture of projected demand from future: 5 Years (2020) 10 Years (2025) 20 Years (2030) 30 Years (2040) Study Area Employees 80% 80% 80% 80% Study Area Residents 60% 60% 60% 60% Palmdale Residents Outside Study Area 6% 6% 6% 6% Recapture of Palmdale Leakage 0% 0% 0% 0% Antelope Valley Residents Outside Palmdale 3% 3% 3% 3% Study Area Employees 80% 80% 80% 80% Study Area Residents 70% 70% 70% 70% Palmdale Residents Outside Study Area 8% 8% 8% 8% Recapture of Palmdale Leakage 6% 6% 6% 6% Antelope Valley Residents Outside Palmdale 5% 5% 5% 5% Study Area Employees 80% 80% 80% 80% Study Area Residents 60% 60% 60% 60% Palmdale Residents Outside Study Area 6% 6% 6% 6% Recapture of Palmdale Leakage 0% 0% 0% 0% Antelope Valley Residents Outside Palmdale 3% 3% 3% 3% Study Area Employees 80% 80% 80% 80% Study Area Residents 70% 70% 70% 70% Palmdale Residents Outside Study Area 8% 8% 8% 8% Recapture of Palmdale Leakage 6% 6% 6% 6% Antelope Valley Residents Outside Palmdale 5% 5% 5% 5% Hospitality Capture of projected demand from future: 5 Years (2020) 10 Years (2025) 20 Years (2030) 30 Years (2040) Study Area Employees 60% 60% 60% 60% Study Area Residents 60% 60% 60% 60% Palmdale Employees Outside Study Area 25% 25% 25% 25% Palmdale Residents Outside Study Area 25% 25% 25% 25% Study Area Employees 60% 60% 60% 60% Study Area Residents 60% 60% 60% 60% Palmdale Employees Outside Study Area 30% 30% 30% 30% Palmdale Residents Outside Study Area 30% 30% 30% 30% Study Area Employees 60% 60% 60% 60% Study Area Residents 60% 60% 60% 60% Palmdale Employees Outside Study Area 25% 25% 40% 40% Palmdale Residents Outside Study Area 25% 25% 40% 40% Study Area Employees 60% 60% 60% 60% Study Area Residents 60% 60% 60% 60% Palmdale Employees Outside Study Area 30% 30% 45% 45% Palmdale Residents Outside Study Area 30% 30% 45% 45% High Without HSR With HSR Without HSR Without HSR With HSR With HSR Palmdale Employment Palmdale Employment Income Qualified Future Palmdale Households Income Qualified Future Palmdale Households Low Without HSR With HSR Low High Low High High Low