Bunker Hill Demand Fuels Downtown Year-End
- Move-ins in the Greater Downtown/Arts District submarket drove demand of 449,200 square feet in Downtown Los Angeles this quarter.
- Vacancy corresponded with a 70-basis-point drop to 16.9%.
- The overall asking rental rate rose to $3.56 per square foot (PSF) full service gross (FSG), an increase of 6.2% year-over-year.
- The Greater Downtown/Arts District submarket also accounted for the lion’s share of leasing volume for the quarter, recording 45% of all activity.
- Shorenstein’s Ford Factory creative conversion was delivered to the market, while Onni’s 1031 S. Broadway joined the list of developments under construction.
Vacancy levels will stabilize in the short-term with most new and under construction due to deliver in 2019. If strong pre-leasing activity comes to fruition, it would help limit large vacancy jumps. Concerns about speculative office deliveries have been largely mitigated by out-of-market relocations to Downtown Los Angeles and the legitimacy of creative inventory in so-called “fringe” submarkets. This is expected to continue as more product comes to market in 2019. Higher build-out costs and competition from creative conversion space will continue exerting upward pressure on rents. Future construction will provide an abundance of high-quality creative space to the market, as the Greater Downtown/Arts District submarket accounts for 36% of all new construction in Los Angeles County.
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. The delivery of a slate of new projects in Greater Downtown will continue to exert upward pressure on asking rates, particularly in Class B inventory.