Real Estate Watch: Los Angeles County
Office Weak, Industrial Lively
Office
2002 was economically challenging for the nation.
As we continued our recovery from the terrorist attacks, the stock market was down and some corporate executives were led from their offices in handcuffs.
The possibility of war loomed as the military deployed troops to the Middle East. Corporate scandals and layoffs dominated the news, with companies downsizing or closing their doors altogether.
The result?
Office vacancy rates inched higher, net absorption and lease rates crept lower and construction activity moved at a crawl.
The Los Angeles County direct vacancy rate was 14.4% at the close of fourth quarter, posting an annual increase of 19.3%. In the South Bay market, where concerns exist regarding the possible closure of the Air Force base in El Segundo,and the potential loss of 20,000 jobs,the direct vacancy rate increased 32.3% year-over-year to 18.8%.
The Los Angeles County office market closed the quarter with 2.4% of sublet vacancy, bringing the total vacancy rate, including sublet space, to 16.8% for the quarter. This total vacancy rate is reasonably consistent compared with the prior three quarters when total vacancy rates ranged from 16.8% to 16.2%.
In the downtown Los Angeles office market, the total vacancy rate reached 19.2% attributable in part to Arthur Andersen LLP vacating 138,000 square feet at Library Tower and Bank of the West subleasing 213,000 square feet at 601 S. Figueroa.
The increase in office vacancy directly influenced lease rates, which averaged $2.12 per square foot, a year-over-year decrease of five cents per square foot compared to fourth quarter of 2001. The West Los Angeles office market leads the county with lease rates of $2.79 per square foot.
Industrial
During the fourth quarter, the Los Angeles County industrial market remained strong, outperforming expectations with increased activity, decreased availability, stabilized lease and vacancy rates, and the first upswing in construction since mid-year 2001.
Gross activity in the county increased 48.8% year-over-year, generating 11.7 million square feet of activity during the fourth quarter. The most dynamic movement was in the Commerce submarket, closing the quarter with 1.5 million square feet of activity compared to 166,000 square feet in the fourth quarter of 2001.
All eight submarkets in Los Angeles County saw at least double-digit annual positive change in activity.
As gross activity increased, availability in Los Angeles County decreased. Availability declined 9.7% year-over-year, ending the fourth quarter with a countywide availability rate of 6.7%. The availability rate in the Vernon submarket saw a 30.2% annual decline, from 8.4% in fourth quarter of 2001 to 5.8% at the end of last year.
The Mid-Counties, San Gabriel Valley and San Fernando Valley submarkets each had increased availability in the fourth quarter, ending at 6.1%, 7% and 6.9% respectively.
During the fourth quarter, lease and vacancy rates remained uniform with the previous quarter, reinforcing the stability of the Los Angeles industrial market. Shrugging off the effects of an uncertain economic climate, current construction activity in the county has increased to 5.9 million square feet.
Data & Analysis provided by CB Richard Ellis’ Global Research & Consulting.
