Market Fundamentals Hold Steady Across Basin

The Los Angeles County office market recorded positive 1,259,200 SF of net absorption as the total vacancy rate decreased 10 basis points to 15.3%. West Los Angeles led positive gains in the county, but the delivery of partially or fully vacant buildings there and in Downtown Los Angeles negated any substantial gains in vacancy.

The market displayed confidence as rental rates increased by $0.08 to $3.19 PSF FSG. Rents rose in all Los Angeles County submarkets except San Gabriel Valley and Central Los Angeles where rents receded slightly. Construction activity remains concentrated in Downtown Los Angeles and West Los Angeles, which accounts for 87% of construction in the county.

Los Angeles County non-farm unemployment in August 2017 rose to 4.8% from 4.5% last quarter, a 2.1% increase year-over-year. Over the past 12 months, Los Angeles County gained 55,700
an increase of 1.2%.

Key Takeaways:

  • The Greater Los Angeles Basin office market posted positive demand of 1,371,400 square feet (SF).

  • Office market vacancy rose by 10 basis points from last quarter to 14.5% despite positive demand due to construction deliveries. A longer historical perspective shows that the
    vacancy rate a year ago held at 14.5%.

  • Asking rental rates continue to increase at a quarterly average of 1.8%, recording $2.98 per square foot (PSF) full service gross (FSG), a 7.4% gain over last year.

  • There is currently 5.9 million SF of new construction in the Los Angeles Basin office market, most of which is to be delivered in the last quarter of 2017 and early 2018.

  • The Los Angeles Basin unemployment rate increased for the third consecutive quarter, ending at 5.0%. However, this is still lower than the 5.2% rate a year ago.

Outlook:

Moving into the end of 2017, the Orange County market is expected to maintain positive momentum. Class A asking rental rates have increased as the Airport Area and South
County submarkets have reached historical peaks, while Central County, North County and West County submarkets continue to see slow but positive growth. New developments coming online during the end of 2017 and into 2018 are expected to put upward pressure on vacancy.