The Los Angeles office market in the fourth quarter regained the momentum lost in the prior period on net absorption, getting back to high levels seen at midyear. Rents are returning to prerecession highs, and vacancy rates are under 15% and trending lower,
The drop in the overall vacancy rate followed a slight uptick in the prior quarter and marked the seventh quarter of decline in the past eight quarters.
The region’s overall asking lease rate increased to $2.89 per square foot from $2.84 in the prior quarter and was up 7.2% for the year, signaling that the market is well into the expansion phase of the cycle.
Just over 2.3 million square feet of office space is under construction in the area. The Hollywood submarket is the most active on a square footage basis, with 898,178 square feet under construction. West Los Angeles is a close second with 847,158 square feet. A total of 358,317 square feet of office space was completed in the Hollywood submarket, much needed in the market, as the vacancy had fallen to 7.7% prior to its completion and the tightness was resulting in strong rent growth that wasn’t indefinitely sustainable.
The fifth and final building at Tishman Speyer’s Collective in Playa Vista was completed and will be leased fully to Innocean, which is slated for move-in this year.
Industrial Market
The industrial market experienced many positive signs throughout 2015 as vacancy levels gradually dropped and average asking lease rates steadily increased, helping to improve market fundamentals and tilt the market further in the landlord’s favor. Demand was steady in general, but activity quarter to quarter was sporadic for the better part of the year, depending on the submarket.
Activity levels in Central Los Angeles, South Bay, and the Greater San Fernando Valley were strong early in the year but dipped slightly in the latter part of 2015. Activity in San Gabriel Valley, Ventura, and Commerce/Vernon, meanwhile, remained fairly consistent and balanced throughout the year. The region’s industrial market remained a landlord’s market, and tenants stayed aggressive when looking for space.
The region’s overall vacancy rate finished the year at 1.3%, down from 1.4% in the third quarter and from 1.7% since the first quarter. The gradual fall in vacancy throughout the year resulted from steady demand and slim supply due to a lack of robust development.
The overall availability rate stood at 4.6% at year-end. A drop in availability throughout the year was due to supply being constricted as new construction deliveries continue to lag behind absorption. CBRE EA predicts that availability will remain flat as 2016 opens, trending up slightly to 4.6% over the next 12 months.
The region has more than 2.8 million square feet of industrial space under construction, the South Bay and San Gabriel Valley accounting for the majority of that. Two large development projects are scheduled to break ground this year in the Greater San Fernando Valley submarket totaling 1.8 million square feet.
Data and analysis by CBRE Research
