2017 Q3 Inland Empire Office Market Snapshot

In the third quarter of 2017, the Downtown Los Angeles office market recorded positive absorption of 125,900 SF, a reprieve from three consecutive quarters of negative demand. The delivery of two partially vacant office buildings contributed to the 40 basis-point uptick in vacancy. Leasing volume recorded 601,300 SF. Asking rents continued to climb, recording growth of 4.5% year-over-year. Class A and B rents increased by 1.6% and 7.7% from the same time last year, pushed by the high entry cost of new speculative space. Traditional tenants in the finance, insurance and real estate (FIRE) industries continue to dominate the tenant base in the market, although these sectors have seen a fair amount of rightsizing. This, combined with a wave of deliveries in the next year, will put pressure on the market as the amount of vacant space rises.

Key Takeaways:

  • The unemployment rate for the Inland Empire was 6.2% as of August 2017, adding 34,100 non-farm jobs to the region over the past year.

  • Construction registered the greatest year over year gain, adding 15,800 jobs.

  • Specialty trade contractors accounted for 85 percent of the job growth in this sector.

  • Leisure and hospitality has grown by 6,300 jobs over the past year.

Outlook:

Three of eight submarkets witnessed positive net absorption with Murrieta/Temecula recording the highest at 10,100 SF and the San Bernardino submarket recording the lowest at -59,200 SF. Among building classes, Class A office led with net absorption at 27,800 SF for the quarter while Class B had the lowest quarterly absorption at -117,200 SF.