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Thursday, Mar 28, 2024
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Greater LA Office Market Grows Slowly, More Expected

The Greater Los Angeles office market gained momentum toward the end of the third quarter.

Growth remains slow and measured, but projected gains in key industries are expected to fuel positive growth toward year-end.

Overall tenant demand in the region has been fairly modest, although some market areas, like West Los Angeles and the San Fernando Valley, are experiencing stronger activity driven by media and technology companies.

Many business owners are still cautious.

New deals are being led by a “flight to quality,” allowing tenants to take advantage of opportunities in well-located, high-quality buildings where the price points are more affordable than a few years ago.

Third-quarter net absorption levels were positive, with a good portion coming from the San Fernando Valley and West Los Angeles. The region recorded 569,532 square feet of positive net absorption, with 153,823 square feet of positive absorption in the valley and 435,048 square feet in West Los Angeles. Year-to-date net absorption was positive, at 452,819 square feet, due to the strong second- and third-quarter numbers. Four out of the nine market areas experienced negative net absorption, but there was enough velocity in West Los Angeles and the Valley to finish the quarter positively.

Direct vacant space and sublease vacant space were slightly higher than levels earlier this year. But a few core markets, such as the Valley and West L.A., have experienced large amounts of positive net absorption through the year, while other markets, such as the South Bay and San Gabriel Valley, recorded negative net absorption.

The overall vacancy rate was 17.2% at the end of the quarter, up compared to last quarter’s rate of 17.1% and 17% at the same time last year. The increase, despite positive net absorption for the quarter, was largely due to the completion of three office projects in West Los Angeles.

Overall asking lease rates in the region showed continual growth, with a steady year-to-date climb of 1.2%. The average asking lease rate was $2.51 full-service gross per square foot at the end of the quarter, up 2 cents from the previous quarter. The rate has climbed approximately 7.2% from its lowest point post-recession but is still considerably lower than the prerecession high of $2.84 full-service gross per square foot, approximately 13.1% higher than the current rate.

No new offices are being built in the region. New construction ended in the previous quarter, with all of the developments in West Los Angeles. The completion of the buildings increased the vacancy rate.

Industrial

The region currently has approximately 2.9 million square feet of industrial space under construction. The bulk of that is speculative, with about 8% being build-to-suit space for specific users.

Four new buildings totaling 881,957 square feet were completed and delivered during the quarter. All but one are larger than 100,000 square feet.

The overall average asking lease rate increased 1 cent to 60 cents per square foot.

Rents are projected to continue going up, pushed by demand and construction of new class A product. The construction may also have greater impact on prices and accelerate the rate of increase.

Data and analysis provided by CBRE Research.

The Real Estate Watch Chart

Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.

CLICK HERE to download the current REAL ESTATE WATCH CHARTS

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