Real Estate Watch: Los Angeles County
Los Angeles Office, Industrial Markets Stabilize
Office
In a report on the Los Angeles economy, the Los Angeles Economic Development Corp. placed the end of the fourth quarter as the nine-month mark in the recession with three months remaining. The report cautioned that an economic expansion signaling the recession’s end would be slow and gradual.
During the fourth quarter, leasing activity was countered by pockets of recession fallout. Major landlords, particularly in West Los Angeles and the South Bay, continued to maintain high coupon rates. But they became more aggressive with incentives in response to the glut of sublet space on the market.
Prospective tenants gained additional options during the fourth quarter as new vacant space increased the direct vacancy rate to 11.8% from 11.6% in the third quarter. For the first time since the technology implosion, vacant sublet space decreased, falling to 3% from 3.2% last quarter. Healthy net absorption gains in Downtown and in the San Fernando and San Gabriel valleys were enough to offset decreases in other areas.
Industrial
For the quarter, 220,000 square feet of positive net absorption of direct space were seen in Los Angeles County. Competition with inexpensive sublet space removed lower-priced product and left more expensive digs on the market during the fourth quarter, causing the aggregate average asking lease rate to rise to $2.17 from $2.12 last quarter. A healthy decline in office projects under construction played out in 2001. In the fourth quarter, 3.9 million square feet of space was under construction, down from 4.5 million square feet last year.
Throughout 2001, industrial sales and leasing activity maintained remarkable consistency at 8.4 million square feet for the first three quarters. Taking an expected seasonal dip in the fourth quarter, industrial activity decreased to 7.9 million square feet, off about 6% from the previous quarters. Compared to last year, the 33 million square feet of activity during 2001 was down 25% from 45 million square feet in 2000.
After a steady rise from the past four quarters, the industrial vacancy rate declined during the fourth quarter to 3.70% from the high of 3.74% in the third quarter. Although vacant space diminished in the quarter, available industrial space (space for lease or sale but still occupied) continued to increase. The availability rate in Los Angeles County rose to 7.5% from 6.9% last quarter,a signal that businesses still were interested in sloughing off excess space. Despite the increases from the past year, total vacant square footage rose less than a percent (0.8%) from 2.9% in the fourth quarter of 2000.
For the first time in eight quarters, the average asking lease rate dropped below 50 cents a square foot, per month. The reduced volume of activity increased the supply of product and prompted increased competition among landlords for the few quality tenants touring the market. Consequently, the average asking lease rate for industrial space tumbled to 49 cents to 51 cents, producing a 4% decrease in a single quarter. After spiking to almost 12 million square feet last quarter, industrial projects under construction leveled off to a relatively normal volume of 10 million square feet.
Analysis provided by CB Richard Ellis’ Global Research and Consulting.
