Moderate Demand As Rents Cool To Start Year
The Central Los Angeles market began 2018 with mixed results. Vacancy decreased by 60 basis points from the previous quarter while absorption remained positive for the second consecutive quarter, posting 82,500 square feet. There is currently 402,900 square feet of office product under construction, along with 195,400 square feet 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. While demand was moderate, rents registered their largest quarter-to-quarter drop (-$0.05) since the first quarter of 2010. A historical perspective shows some cooling. Growth slowed to 0.9% after exhibiting 4.2% growth last quarter.
- The average rent for Class A buildings in Central Los Angeles was $3.36 per square foot (PSF) full service gross (FSG), a $0.04 difference from last quarter and a 0.6% increase year-over-year.
- Vacancy dropped 60 basis points from one quarter ago, recording 16.7%.
- Leasing activity recorded 264,200 square feet to start the year.
- Investment activity was non-existent, as no buildings over 25,000 square feet traded.
- Approximately 342,400 square feet of office product is under construction and 60,500 square feet of proposed construction is further expected in the Hollywood submarket.
The Hollywood submarket will continue to see demand for space from entertainment, media and technology firms as pre-leased properties are delivered to the market, although the pipeline has dried up considerably from its height a year ago. 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 ends, the market will look to its proposed construction pipeline in 2018 and beyond to continue fulfilling demand for high quality creative and headquarter spaces.