Market at Mid-Year Sees Steady Demand


The Los Angeles County office market recorded 571,200 SF of positive absorption as the total vacancy rate decreased 20 basis points to 15.5%. All submarkets except for the Tri-Cities recorded positive demand. Rental rates increased $0.04 to $2.98 PSF FSG as core submarkets such as West Los Angeles and Central Los Angeles continued to experience the residual upward pressure seen in 2015, while rental growth in other submarkets slowed.

 

Construction activity remains concentrated in Downtown Los Angeles, West Los Angeles and Central Los Angeles, which accounted for 92% of all construction in the county. August 2016 figures for nonfarm employment in Los Angeles County showed unemployment decreasing to 4.9%, a decrease year-over-year from 6.4%. Over the past 12 months, Los Angeles County has gained 73,000 jobs for an increase of 1.7%.

Key Takeaways:

  • The Greater Los Angeles Basin office market recorded positive net absorption for the 10th consecutive quarter at 1,227,200 square feet (SF).

  • The office market vacancy trends fell by 40 basis points from last quarter at 14.5%. A longer historical prospective shows that the vacancy rate a year ago stood at 15.3%.

  • Asking rental rates continue to increase at a quarterly average of 1.5%. Second quarter overall rental rates recorded at $2.78 per square foot (PSF) full service gross (FSG).

  • There is currently 5.3 million SF of new construction in the Los Angeles Basin office market of which most is to be delivered in 2017.

  • The overall economy continues to see solid growth in third quarter. Los Angeles Basin unemployment rates have declined from 6.4% to 5.2% year-over-year.

Outlook:

Due to the flurry of deliveries the past two quarters, the construction pipeline has lessened in Hollywood. Projects such as Hudson Pacific’s fully preleased ICON and J.H. Snyder’s 1601 N. Vine projects are set to deliver in early 2017. Future construction will provide an abundance of high quality creative space to the market, as Downtown Los Angeles accounts for 41% of all new construction in Los Angeles County.

 

The West Los Angeles market is poised to add just under 1.2 million SF in the near future as construction and creative conversions deliver. The unemployment rate fell to 4.6% in August 2016, which was last seen nine years ago. Given these market conditions, the San Fernando Valley and Ventura County office market trends are expected to move in a slow positive growth rate El Segundo has long been the destination choice in the market, but other submarkets, such as Central Torrance and LAX/Los Angeles/Westchester, are being noticed by tenants and investors alike.

 

Despite fluctuations in San Gabriel Valley vacancy, rents have risen for 14 straight quarters since second quarter 2013, but are still short of the last market peak of $2.39 PSF FSG in 2007. In the Tri-Cities submarket, modest leasing activity and a gradual rise in rents still indicates some confidence in the market. Three of the five submarkets saw increases in rates, leading to a net gain of $0.01 overall.