2017 Q4 Greater Los Angeles Basin Office Knowledge Report

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Deliveries Mute Demand While Rents Rise

The Los Angeles County office market recorded 333,500 square feet of net absorption as the total vacancy rate stagnated at 15.3%. Central Los Angeles and the South Bay led positive gains in the county, but the delivery of partially or fully vacant buildings in West Los Angeles negated any substantial gains in vacancy.

The market displayed confidence as rental rates increased by $0.04 to $3.23 PSF FSG. Rents rose in all Los Angeles County submarkets. Construction activity remains concentrated in Downtown and West Los Angeles, which accounts for 77% of construction in the county. Los Angeles County non-farm unemployment in November 2017 dropped to 4.1% from 4.8% last quarter, a 1% decrease year-over-year. Over the past 12 months, Los Angeles County gained 59,700 non-farm jobs for an increase of 1.2%.

Key Takeaways:

  • The Greater Los Angeles Basin office market posted positive demand of 1,018,100 square feet.

  • Despite positive absorption, office market vacancy rose by 10 basis points from last quarter to 14.5% due to construction deliveries. Historically, vacancy rose by 30 basis points from 14.2% year-over-year.

  • Asking rental rates continued to increase at a quarterly average of 2.0%, recording $3.03 per square foot (PSF) full service gross (FSG), an 8.3% gain over last year.

  • There is currently 5.1 million square feet of new construction in the Los Angeles Basin office market, three quarters of which is to be delivered in 2018.

  • The Los Angeles Basin unemployment rate decreased for the fourth consecutive quarter, ending at 3.9%. Going forward, this historic low raises concerns over how much growth the local economy can achieve.

Outlook:

Strong leasing activity for the quarter will help keep Central Los Angeles office demand steady into early 2018. Rents continued their ascent after a momentary slide last quarter, finishing at $2.76 PSF FSG. Overall rates were up 4.2% year-over-year. The West Los Angeles market is poised to add just under 1.7 million square feet in the next two years as construction and creative conversions deliver. With only one new project under construction in San Fernando Valley and Ventura County, the market will remain supply-constrained and absorption is expected to remain flat to slightly positive. Given these market conditions, San Fernando Valley and Ventura County office market trends are expected to move at a slow rate. Market fundamentals will remain strong in Orange County as newly built inventory delivers to the market, giving tenants the opportunity to explore new space options. As tenants seek right-size space options and new construction delivers to the market, absorption gains are expected to be limited in coming quarters.


Greater Los Angeles Basin Office Knowledge Report

2017 Q4 Greater Los Angeles Basin Office Knowledge Report

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