Office Market
The Los Angeles office market continued to show strength and growth during the third quarter.
Vacancy in the region decreased, and lease rates, net absorption and construction activity all increased compared to the third quarter a year ago.
Rates are expected to continue to rise as vacancy tightens, the price of steel and, consequently, construction increases, and landlords use their position to demand higher rates.
The San Fernando Valley, Tri-Cities and West Los Angeles markets are landlord-controlled areas; downtown Los Angeles and South Bay are not.
Nearly 1 million square feet were absorbed during the third quarter, with each market in the region seeing positive net absorption.
The downtown Los Angeles office market made the most significant swing from negative 155,396 square feet in the second quarter to positive 151,322 square feet in the third.
The West Los Angeles market contributed 74,179 square feet of positive net absorption to the region, a decrease in absorption of 395,358 square feet compared to the previous quarter.
Office vacancy in the region declined for the third consecutive quarter to 13.2%. The San Gabriel Valley is the tightest market in the region, with 7% direct vacancy, while the South Bay office market offers the most opportunity with 20% of its office space vacant.
Average asking rates in the region ticked down slightly in the third quarter to $2.09 per square foot.
Asking rates for class A space average $2.27 per square foot, while class B space is at $1.71 per square foot.
Industrial Market
Several third quarter statistics were at their strongest since the first quarter of 1999, including average asking lease rates, net absorption, gross activity, activity for buildings greater than 100,000 square feet and activity for buildings less than 100,000 square feet.
The market also improved on last quarter’s record-setting low vacancy rate. Vacancy, which stood at 2.3% in the second quarter, now is 2.2%. This new low, coupled with the lowest availability rate (6.2%) since the first quarter of 2001, will continue to augment rent growth and prove to be a sign of things to come next year.
The ports of Los Angeles and Long Beach hit highs for cargo container trade in July, due in large part to the arrival of the first of five 8,500 20-foot-equivalent-unit vessels to be delivered to Long Beach during the next two years from China Shipping Container Lines.
In August, China Ocean Shipping Co. sent an 8,000 20-foot-equivalent-unit vessel, which also was the first of five chartered for Long Beach. The port of Long Beach is particularly appealing to these Shanghai-based companies because it is one of the few U.S. ports with terminals large enough and channels deep enough to handle these mega-ships when fully loaded.
Local developers continue to focus on small buildings, citing the “inventory-lean” philosophy businesses are shifting toward, according to the Los Angeles Economic Development Corp.
However, while buildings less than 100,000 square feet did exceed 10.2 million square feet of activity in the third quarter, the market for larger industrial space also remains hot. The quarter saw 47% of the year-to-date activity total for buildings greater than 100,000 square feet.
Analysis by CB Richard Ellis Global Inc.’s Information Management Department.
