Bunker Hill Demand Fuels Downtown Year-End

Key Takeaways:

  • Bunker Hill drove demand in the fourth quarter in Downtown Los Angeles, fueling absorption to positive 892,300 square feet for the year
  • Vacancy corresponded with a 120-basis-point drop to 17.6%
  • The overall asking rental rate rose to $42.05 per square foot (PSF) full service gross (FSG), a change of 4.6% year-over-year
  • The Financial District accounted for the lionís share of leasing volume for the quarter, recording 70% of all activity
  • The current construction pipeline held steady with fourth quarterís single project delivery, the Title Insurance building in Greater Downtown/Arts District, pushed back to the first quarter of 2019

Outlook:

 The Downtown Los Angeles office market recorded positive absorption for the sixth straight quarter as pent-up demand from 2017 and 2018 boosted 2018 absorption to just under 900,000 square feet. Vacancy dipped below 18%, 130 basis points below the five-year historical average of 19.3%. Leasing volume recorded $2.2 million square feet for 2018, as relocations to Downtown earlier in the year and musical chairs by several financial and legal firms kept activity high. Asking rents in the CBD have continued growing by 4.6% year-over-year. Higher rents in both creative office space and the upward pressure those have in turn exerted on traditional CBD landlords have kept rates high in the market.

Downtown L.A. vacancy is expected to contract slightly as positive demand counters new construction deliveries. Interest from out-of-market tenants persists, especially in the media and technology industries, and has helped legitimize Downtown Los Angeles as a competitor to markets such as Hollywood and Silicon Beach. Beyond those relocations, another trend is the reallocation of space, where companies split their office needs between differently priced locations to maintain or increase their footprint while still saving money on their real estate obligations.

 

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