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REAL ESTATE WATCH: Los Angeles County

The greater Los Angeles office market continues to weather the downside of the commercial real estate market cycle, with market weakness at levels not seen since 2001.

Vacancy rates continue to rise due to the financial sectors downsizing.

Asking rental rates are holding steady, but gross market activity has slowed considerably amid heightened economic volatility and uncertainty on the national stage.

As the national economy weakened throughout 2008, the Los Angeles office market remained relatively insulated from the brunt of the storm. Its 200 million-square-foot market base is made up of a diverse cross section of industries, and as a result, the impact to the overall market has been diluted compared to outlying suburban office markets with higher concentrations of mortgage- and housing-related companies.

More specifically, only 10.6% of the financial and business sectors of the Los Angeles office market base are exposed to the mergers, bankruptcies and other economic concerns, which have resulted in minimal impact. Activity has come to a relative standstill due to the collapse of the commercial mortgage-backed securities and lending markets, which directly impact investment and owner user sales. While interest in ownership and investment from institutional, private investors and 1031 exchange buyers in Los Angeles remains strong, demand cannot be satisfied because buyers are still looking for a bargain, because there is a lack of financing and because the U.S. economy is unstable.

Overall, the greater Los Angeles office market’s fundamentals are good. Limited construction, a healthy vacancy rate, stable asking rents, decreasing contract and effective rents and a diverse office tenant base will help the office market continue to withstand the current national economic crisis.


Industrial Market

While the greater Los Angeles industrial market continues to sustain market pressure as one of the top industrial markets in the U.S., it cannot help but be impacted by the national economic crisis.

The Institute of Supply Management’s Purchasing Managers Index has reported a contraction of the nation’s manufacturing market for the third quarter. The Greater Los Angeles industrial market has been impacted by a decline in exports from the Los Angeles and Long Beach harbors, a decline in new orders from manufacturers, local transportation issues, a large inventory of vacant industrial space in the adjacent Inland Empire and an increase in local and national unemployment.

The industrial market has 988 million square feet with an overall vacancy rate of 2.3%. The Los Angeles county vacancy rate of 2.1% has been consistently below 3% since the second quarter of 2002. Los Angeles County’s industrial vacancy rate has risen 23.5% since the first quarter.

This trend has not been seen since before 2001.

Overall, the greater Los Angeles industrial market fundamentals are still good, but the demand may be declining. Vacancy rates are increasing albeit ever so slightly quarter over quarter, activity has been stagnant and manufacturers are experiencing the brunt of the economic slowdown, the impact of the commercial capital market collapse and still high industrial property values in the market.


Data and analysis provided by CB Richard Ellis Group Inc.

The Real Estate Watch Chart – Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.



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REAL ESTATE WATCH CHARTS

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