Rents Register Slight Drop in Central Los Angeles

The Central Los Angeles market saw demand taper during the third quarter with vacancy increasing by 50 basis points from last quarter and absorption closing at -11,400 SF for the quarter. There is currently 60,500 SF of office product under construction along with 811,000 SF of additional proposed product scheduled to break ground in 2018. 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.

Strong leasing activity in 2016 has kept demand steady through late 2016 and early 2017. Increasing rents reversed for the first time in three years, as rents dipped by $0.01 PSF FSG. Overall rents are still up 3.6% from the same time last year.

Key Takeaways:

  • Delivery momentum continued in the third quarter as Hudson Pacific delivered the 92,000 square foot (SF) CUE building at 5800 Sunset Blvd. to the market. This leaves 60,500 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 $3.38 per square foot (PSF) full service gross (FSG), a 2.9% decrease year-over-year.

  • Vacancy increased 50 basis points from one quarter ago recording 18.5%.

  • Leasing activity slid from last quarter's 273,300 SF total to record 151,500 SF.

  • Investment activity consisted of Klaff Realty LP acquiring 1360-1370 N. St. Andrews Pl. for $20.7 million ($321 PSF).

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.

As the current development rush, highlighted by projects from Hudson Pacific, J.H. Snyder and Kilroy, comes to a close, the market will look to its proposed construction pipeline in 2018 and beyond to continue fulfilling demand for high quality creative and headquarter spaces.