The greater Los Angeles office market continued to grow in 2006, offering returns for investors amid tightening vacancies, rising rents and a slowdown in speculative construction.
Los Angeles County saw 384,807 square feet of positive net absorption in the fourth quarter for a yearly total of 4.05 million square feet.
The greater L.A. area, including Ventura County, saw 527,939 square feet of net absorption in the fourth quarter, slightly lower than the 795,865 square feet of the third quarter.
The L.A. County office market saw rising in rents in the fourth quarter, going to $2.44 per square foot compared to $2.39 the prior quarter.
The greater L.A. average asking lease rates rose by 1.7% from the third quarter to $2.41 per square foot in the fourth, largely due to the 2.4% increase in class A asking rates between quarters to $2.61 per square foot in the fourth quarter.
Investors remain active. Sale activity in the tri-cities area continues to be solid with investors seeking space in Pasadena, Glendale and Burbank.
Construction in the greater L.A. office market remains in check, with a small supply of space added in 2006. There was no construction in the fourth quarter.
The greater L.A. industrial market ended 2006 with an enviable low vacancy rate of 1.5%. International trade continues to fuel demand for warehouse space. Demand should continue to outpace supply as suitable warehouse and redevelopable land become hard to find.
Despite constricted supply, the industrial market posted a positive net absorption total of 4.7 million square feet for 2006.
Vacancy rates have been in steady decline, hitting 1.3% in the fourth quarter. The submarkets of Vernon and the city of Los Angeles had the lowest vacancy rates for this quarter at 0.3%. Ventura County posts the highest vacancy rate of 4.5%.
Availability increased slightly in the fourth quarter to 4.6% from 4.5% in the third for L.A. County.
Tight industrial supply and healthy occupancy levels should continue to put push up average asking lease rates and property values. The average asking lease rate in L.A. County is up from 59 cents per square foot in the fourth quarter of 2005 to 64 cents per square foot in the recently ended quarter, a 9% increase.
Gross activity fell from 10.8 million square feet in the third quarter to 9 million square feet in the fourth. Los Angeles County markets are seeing a slowdown in sales as some potential buyers reexamine leasing versus buying.
Construction completions countywide are up from 5.8 million square feet a year earlier to 6.3 million square feet in the fourth quarter. The majority of activity is in the San Gabriel Valley with more than 3 million square feet under construction.
Demand will continue for modern, efficient industrial space, particularly in key logistical and manufacturing areas. Markets such as Santa Clarita Valley are running out of land after an unprecedented decade of construction and developers now are looking at Palmdale and Fillmore for expansion.
Analysis provided by CB Richard Ellis.
