Office Deliveries Continue for Central Los Angeles

The Central Los Angeles market saw moderate demand activity during second quarter with vacancy decreasing by 10 basis points from last quarter, and absorption closing at 112,200 SF for the quarter. There is currently 152,500 SF of office product under construction along with 811,000 SF of additional proposed product. This additional inventory will be attractive to both office tenants seeking new product in a high-image location and creative content producers looking for integrated office/production space in the creative center of Los Angeles.

Demand from strong leasing activity in 2015 and 2016 has finally started to manifest. After a period of stagnation, rents rebounded, registering an average increase of 2.0% in the last 3 quarters. Class A rents, however, decreased by 0.7% from last year.

Key Takeaways:

  • Delivery momentum continued in the second quarter with J.H. Snyder's 1601 N. Vine St. delivering 115,600 square feet (SF) to the market. This leaves 152,500 SF of office product under construction and 811,000 SF of expected proposed construction in the Hollywood submarket.

  • The average rent for Class A buildings in Central Los Angeles is $3.42 per square foot (PSF) Full Service Gross (FSG), a 0.7% decrease year-over-year.

  • Vacancy decreased 10 basis points from one quarter ago recording 18.0%.

  • Leasing activity rose from last quarter's 122,100 SF total to record 273,300 SF.

  • Investment activity consisted of Hudson Pacific acquiring Hollywood Center Studios for $200,000,000 ($542 PSF).

Outlook:

One headwind facing the Central Los Angeles industrial marketplace is the continued consolidation of the apparel industry. This quarter BCBG Max Azria has given back 416,600 SF of space that was formally occupied by Sears. It remains to be seen how long this space will remain vacant or if this space will be repositioned into a higher and better use. The former American Apparel manufacturing space has been converted to creative office and retail. A significant downturn impacting manufacturing may lead to industrial assets being repositioned to suit the changing nature of the Central Los Angeles marketplace.