Office
The greater Los Angeles office market is beginning to see the side effects of the national and regional market slowdown and recession.
Vacancy rates in Los Angeles County have increased 23% from the end of 2007, with the most significant annual increase in the San Gabriel Valley office market at a 68% increase.
Another notable market increase is the San Fernando Valley, which has seen an annual vacancy rate increase of 47% to 12.6% vacancy, with the anticipation of additional space coming on to the market in early 2009.
On the statistical side, asking rental rates continue to hold steady at $2.83 a month per square foot. The greater Los Angeles vacancy rate has risen slightly to 11%.
Net absorption, an indicator of market activity, has been the most impacted. Net absorption for the fourth quarter was a negative 1.3 million square feet.
Year-end net absorption was a negative 2.9 million square feet, which is a historical low.
On a brighter note, downtown Los Angeles was the only submarket to post absorption for the year,at 157,294 square feet.
Gross market activity, namely sales and leases, have come to a crawl primarily due to the limited financing available in the market and nation, and corporate executives nd investors’ resistance to making real estate-related business decisions in this uncertain environment.
In summary, the greater Los Angeles office market is experiencing a slowdown. Construction in Los Angeles County is at 2.6 million square feet. This year’s commercial real estate office activity will be primarily through refinancing, lease renewals, appraisals, cost segmentation, consultation and investment portfolio sales.
Industrial
The greater Los Angeles industrial market continues to hold steady as one of the nation’s top industrial markets. Although availability has increased to 5.5%, vacancy rates countywide are at 2.3%, one of the lowest in the nation.
The greater Los Angeles industrial market continues to be impacted by a decline in exports and activity at the Los Angeles and Long Beach ports. Local infrastructure and transportation issues continue to be a major political topic, and the large inventory of vacant industrial space in the Inland Empire has an impact on industrial investments, leasing and appraisals.
Industrial asking monthly lease rates declined to 64 cents per square foot, a 7% decrease from the third quarter, with 1.6 million square feet of industrial space under construction in the county.
Fourth quarter gross industrial activity was at 6.9 million, with the South Bay, Commerce and Los Angeles industrial markets having the most activity. Absorption was at a negative 1.8 million square feet for the fourth quarter.
Overall, the Los Angeles County industrial market is still fundamentally sound due to the limited industrially zoned land, limited construction, and low vacancy rates.
National economic conditions have begun to impact the market.
But Los Angeles County industrial may be one of the first markets to rebound from the economic slowdown.
Data and analysis by CB Richard Ellis Group Inc.
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