West L.A. Gains Momentum Going Into Year-End
Vacancy in the West Los Angeles market rose by 50 basis points as the delivery of One Culver to the market outweighed demand of 34,800 square feet. Rents continued their ascent, rising by $0.06 to $4.61 PSF FSG. Leasing activity slowed, recording 896,700 square feet, the first quarter in the past fifteen to not exceed one million.
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. Leasing efforts for these projects will go a long way in determining whether vacancy stabilizes in the West Los Angeles market or continues to rise.
The average asking monthly rent for West Los Angeles rose to $4.61 per square foot (PSF) full service gross (FSG), a 6.2% increase year-over-year.
Demand fell, recording 34,800 square feet (SF) of positive absorption. Gains in Marina Del Rey/Venice and Culver City were cancelled out by softening in Beverly Hills.
The under-construction pipeline held steady, adding four more planned properties while one property delivered; the total number of buildings in the pipeline is seventeen.
Investment was relatively muted with only three properties trading, highlighted by Olive Hill Group’s acquisition of 520 Broadway in Santa Monica.
Leasing activity recorded 896,700 square feet, down 30.4% year-over-year.
The West Los Angeles market maintained limited momentum to end 2017. Vacancy experienced a slight uptick due to the delivery of vacant space, but demand remained positive for the quarter. The market softened on a yearly basis, posting its lowest absorption total since 2012. Leasing velocity fell for the quarter as well. Landlords in some supply-constrained markets are expected to continue pushing rental rates, although not quite at the rate of previous quarters. The construction pipeline remains full, so how much of the space will remain speculative at delivery bears watching.
Heading into 2018, vacancy should mirror 2017’s trend of incremental tightening, but much of that will depend on the occupancy of current construction projects at delivery. The low unemployment rate and a focus on space efficiency will lessen demand into early 2018. The West Los Angeles submarket continues to defy convention as rates increased at a torrid pace in 2017. West Los Angeles constitutes 42% of new construction in Los Angeles County; robust construction activity will persist into 2018. Investment activity was robust in 2018; the market will be hard pressed to match this level of activity in 2018.