West L.A. Maintains Momentum To Start Year

Vacancy in the West Los Angeles market rose by 10 basis points as the delivery of a few partially vacant buildings negated absorption gains in Marina Del Rey/Venice and Culver City. Rents continued their ascent, rising by $0.02 to $4.63 PSF FSG, although year-over-year growth fell considerably. Leasing activity rebounded from last quarter’s 896,700 square feet, recording 1,417,400 square feet of velocity. The West Los Angeles market is poised to add more than 1.65 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 overall vacancy rate for West Los Angeles rose 10 basis points to begin the year at 13.9%. Class A properties accounted for most of the movement in vacancy, with a 30-basis-point increase from 14.8% to 15.1%.Vacancy rose despite positive absorption due to the delivery of vacant buildings in Culver City and Marina Del Rey/Venice. Absorption recorded 122,500 square feet for the quarter. Leasing velocity rebounded from last quarter’s 896,700 square feet, posting 1,417,400 square feet. Culver City led the market in velocity as NFL Networks renewed for 175,000 square feet at 10950 W. Washington Boulevard, while Apple signed for 128,000 square feet and Amazon signed for 75,000 square feet at the 8777 Washington and Culver Steps projects, respectively. Overall monthly asking rental rates continued along an upward trend, albeit at a more measured pace than past quarters. The current overall rental rate of $4.63 PSF increased by $0.02 from the previous quarter. Four properties came to market, highlighted by the delivery of Building E at Rockwood Capital’s Playa Jefferson. The property will expand the campus footprint by 55,000 square feet. The West Los Angeles construction pipeline remains active. Hackman Capital’s 5500 W. Jefferson Boulevard project and Colorado Creative Studios’ Santa Monica Gateway are due to deliver in the second quarter of 2018. Investment activity for properties greater than 25,000 square feet increased from the previous quarter’s total of $273.4 million, recording $350.5 million in investment sales volume.

Key Takeaways:

  • The average asking monthly rent for West Los Angeles rose to $4.63 per square foot (PSF) full service gross (FSG), a $0.02 increase over the previous quarter.

  • Demand rose, recording 122,500 square feet of positive absorption. Gains in Marina Del Rey/Venice and Culver City figured prominently for the quarter.

  • The under-construction pipeline held steady, adding three more planned properties while four projects delivered; a total of 17 buildings remain in the pipeline

  • Investment maintained momentum with three properties trading, highlighted by Rockwood Capital’s acquisition of the Water’s Edge campus in Playa Vista.

  • Leasing activity recorded 1,417,400 square feet, up 7.6% year-over-year.

Outlook:

Heading into the middle of the year, vacancy should mirror 2017’s trend of incremental tightening, though 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. West Los Angeles rental rates will continue to rise at a more moderate pace in the near future. West Los Angeles constitutes 40% of new construction in Los Angeles County, and robust construction activity will persist through 2018. Investment activity was robust in 2017. The market will be hard pressed to match this level of activity in 2018.

The West Los Angeles market maintained limited momentum to begin 2018. Vacancy experienced a slight uptick due to the delivery of vacant space, but demand remained positive for the quarter. While rents once again increased from the previous quarter, year-over-year growth slowed considerably. West Los Angeles continues to be one of the premier office markets for entertainment and tech tenants and we expect this to remain so for the foreseeable future whether rent growth continues to slide. Developers seem to agree, as new projects break ground to replace those that deliver to the market.