2017 Begins With Continued Strong Demand

The Central Los Angeles market saw robust demand activity during first quarter with vacancy decreasing by 100 basis points from last quarter, and absorption closing at 402,100 SF for the quarter. There is currently 268,100 SF of office product under construction along with 790,500 SF of additional proposed product. This additional inventory will bode well for the Hollywood market, opening options for tenants seeking new product in a preferred high-image location. Media and tech companies continued to see the Hollywood submarket as an attractive offering of high-image new Class A inventory and abundant production facilities. While demand from strong leasing activity in 2015 and 2016 has finally started to manifest, rents have seen some flattening, registering an average increase of 0.8% in the last 3 quarters. Class A rents decreased by 0.1% from last quarter.

Key Takeaways:

  • Hudson Pacific's Icon at Sunset property delivered 323,300 square feet (SF) of fully occupied space to the market, leaving 268,100 SF of office product under construction and 790,500 SF of expected proposed construction in the Hollywood submarket.

  • The average rent for Class A buildings in Central Los Angeles is $3.34 per square foot (PSF) Full Service Gross (FSG), a 3.3% decrease year-over-year.

  • Vacancy decreased 100 basis points from one quarter ago recording 18.1%.

  • Leasing activity rebounded from last quarter's 99,300 SF total to record 122,100 SF.

  • Investment activity started the year with forward momentum as 4 office properties more than 25,000 SF traded hands in the market.

Outlook:

The Hollywood submarket will continue to see strong demand for space from entertainment, media and technology firms as pre-leased properties are delivered to the market. With the surrounding submarkets mostly built-out and creative tenants passing on the burgeoning, but not fully-realized Downtown Los Angeles creative market, Hollywood has the opportunity to attract tenants desiring quality space at a lower price-point than the Silicon Beach cluster. That window, however, is closing due to the ascent of Hollywood rents, concurrent with a robust pre-leasing environment. With fewer large block options currently available and a current focus on medium sized opportunities, the market will look to its proposed construction pipeline in 2017 to continue fulfilling demand for high quality creative and headquarters spaces.