Downtown L.A. Vacancy Up As Rent Growth Slows
- Similar to past years, the Financial District submarket accounted for the majority of the 2.4 million square feet in leasing volume for the year, recording 46% of all activity.
- Move-outs in the Financial District and Bunker Hill submarkets factored heavily into demand of negative 133,500 square feet in Downtown Los Angeles this quarter.
- Due to negative absorption and vacant construction deliveries, vacancy rose 150 basis points to 20.2%.
- The overall asking rental rate rose to $3.63 per square foot(PSF) full service gross (FSG), an increase of 3.5% year-over-year.
- There was no investment activity for buildings greater than 25,000 square feet this quarter.
Downtown L.A. Office Market:
The Downtown L.A. office market recorded negative absorption for the first time in ten quarters, bringing 2019’s total to 527,500 square feet. Leasing volume recorded 2.4 million square feet for the year, eclipsing 2018’s total by 10%. Vacancy rose to 20.2% due to the aforementioned demand, as well as vacant construction completions in the Financial and Greater Downtown/Arts Districts, which posted vacancy rates of 21.8% and 33.5%, respectively. Asking rent growth in the central business district has slowed to 3.5% after exceeding 5% for the previous two quarters. Unlike West Los Angeles, a preponderance of space owing to the 20.2% vacancy rate have led to this slowing growth rate.
As 2020 begins, Downtown L.A. vacancy is expected to contract slightly as positive demand in the new future counters new construction deliveries. The market will see some bumps in vacancy as build-out times continue to expand and push anticipated occupancies further into the future. Interest from out-of-market tenants persists, especially in the media and technology industries, and has helped legitimize parts of Downtown Los Angeles as a competitor to markets such as Hollywood and Silicon Beach. However, the delivery of a slate of new projects in the Greater Downtown/Arts District submarket might outweigh that potential demand, and has already shown signs of weighing down rental rate growth in the short-term.