Commercial Real Estate Market

Los Angeles Commercial Real Estate – Office Market Outlook 1Q 2016

Los Angeles Commercial Real Estate – Office Market Outlook 1Q 2016

MARKET OVERVIEW

The Los Angeles County office market continued to experienceLos Angeles Commercial Office Trend Legend
occupancy growth in the first quarter of 2016. The 11.3% vacancy rate
in the office market declined 10 basis points over the prior quarter and
90 basis points from the prior year. This is the lowest vacancy rate seen
in Los Angeles County since 2009. This quarter’s sale and lease activity
combined for more than 8.3 million square feet. When compared to last
year at this time lease activity has slowed. In addition, office space under
construction totaled more than 3.1 million square feet. Average asking
rents for office space in the Los Angeles region continue to rise. Average
asking rents began 2016 at $2.83/SF, up 2.2% over the prior quarter
and up 8.4% over the first quarter of 2015. Demand for office space is
broad based coming from professional & business services, education &
health services and government. Employment in these sectors improved
from 2015, with education & health services growing 5.0% from last year.
Employment projections place growth in professional & business services
and education & health services at an annual average of 2.0% and 2.9%
respectively, indicating a lower rate of growth in the coming year.

TRENDS TO WATCH

Available sublease office space is up 4.3% from the prior quarter in Los
Angeles County, and it is 10.7% higher than last year. Sublease asking
rents have risen 7.0% year over year as more expensive sublease space
has hit the market. As the availability of sublease space begins to pile up,
the market for sublease space will get softer and the gap between direct
and sublease space should begin to widen. With space sitting longer on the market, sublessors are going to be motivated to drop rates.

Average Asking Rent and Vacancy Rate

Average Office Rents in Los Angeles

LEASING

Rising rents appear to be having an impact on the office market. When compared to last year at this time, lease activity has slowed. Leasing activity totaled more than 4.6 million square feet, which represented a 21.7% decrease over the previous quarter and a 20.9% decrease from this time last year. This quarter, International Creative Management, Inc. leased 108,259 square feet of office space in Century City for $6.00/SF. Horvitz & Levy LLP leased 21,584 square feet of space in Burbank for $3.45/SF.

SALES
Sales volume exceeded 3.3 million square feet in this quarter, representing a 15.4% increase from the prior quarter. In March, Douglas Emmett, Inc. closed on a five property, 1,725,000 square foot portfolio sale for $1.34 billion. The portfolio consisted of four Class A office buildings and a parking garage in Westwood in the LA West submarket and reported a 3.7% cap rate. With this purchase, Douglas Emmett now controls 74% of the Wilshire office corridor.

Los Angeles Commercial Office Market StatisticsSpecial thank you to J.C. Casillas Vice President Research, Marketing and Communications for putting this report together for me.

For more information on leasing or purchasing space in Los Angeles, please contact me below.

Forrest Blake
NAI Captial
CA BRE License #01054174
310-850-2381
fblake1000@gmail.com

 

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