Office
The Los Angeles office market continued to tighten during the third quarter. Despite a 1.4 million-square-foot increase in the base, vacancy rates held firm and sustained the 10-year low of 10.5% achieved in the second quarter. Since the third quarter of 1999, the Los Angeles region’s vacancy dropped from 12.3%, a 15% decline. The Glendale/Tri-City and South Bay submarkets had the greatest declines in vacancy in the 12 months.
The average asking lease rate rose 11 cents to $1.94 during the third quarter, reaching an all-time high, which was largely due to the delivery of new Class A space (most of the 1.4 million square feet added to the office base in the quarter were Class A).
Although deliveries were up, construction activity and net absorption slowed during the third quarter. Year-to date net absorption of 5.1 million square feet nearly matched 1999’s full-year total of 5.2 million square feet. Five of seven submarkets accounted for all of the positive net absorption for the quarter.
Due to prudent anticipation of the marketplace, overbuilding has not occurred. Construction activity decreased 50% from the second quarter, to 1.9 million square feet under way. Los Angeles appears well positioned for any slowing in the economy, hedging the market against devaluation.
Industrial
Continued strong demand and diminishing inventory appear to have tightened the industrial market in Los Angeles. Lower levels of new construction decreased vacancy, availability and activity and boosted lease rates through the third quarter.
Much of the new space delivered to the market was pre-leased. The 500,000-square-foot decrease in activity paralleled the 900,000-square-foot reduction in new construction. This quarterly tapering followed more than a year of quarterly increases that peaked in the second quarter, reaching 11.9 million square feet in gross sale and lease activity. Vacancy and availability tightened to 2.7% and 5.2%, respectively, reversing a year-old climbing trend. Lease rates rebounded from a 1-cent decline in the second quarter to regain the all-time high of 52 cents first achieved at the beginning of this year, and up 8% from 48 cents in the third quarter of 1999.
Despite the 7% quarterly decrease in construction activity to just less than 10 million square feet, third quarter industrial construction was 48% above that of the third quarter of 1999. By the end of the quarter, new construction had driven the industrial base to encompass more than 870 million square feet.
