The incremental improvement in the Greater Los Angeles market at the start of the year accurately reflects the macroeconomic backdrop of slow but steady growth amid global weakness.
The overall vacancy rate in the office market decreased from 15.8% a year earlier to 15.1%. The direct vacancy rate fell from 15.2% to 14.5% and is approaching the 10-year average vacancy rate of 14%. The vacancy rate in the West Los Angeles submarket decreased the most of any Los Angeles County submarket—falling from 12.7% to 11.3%—aided by decreases in West Hollywood and Culver City.
The market’s strong absorption fell slightly below the quarterly average of 693,180 square feet from 2014-2015 to the present, dragged down by large negative absorption in Ventura County as a result of a large move out by Bank of America Home Loan.
The overall monthly asking lease rate increased slightly to $2.91 from $2.89 per square foot in the previous quarter, up by 4.6% over the past four quarters.
Just over 2.3 million square feet of office space is under construction in the region. Hollywood remained the most active district, with 459,431 square feet in the works, though product in other submarkets is starting to contribute a steady stream of space.
Industrial Market
Positive market trends carried over from last year in the industrial market. Rental rates rose, and tenant activity kept steady.
Lack of supply has caused a significant dip in lease and user sale activity. Many landlords continued to increase rental rates as availability and vacancy rates hit all-time lows across the region. A lack of supply will be a prevailing theme this year, and CBRE Econometric Advisors predicts net absorption will outpace new supply.
The average asking lease rate at quarter’s end was 71 cents per square foot, up 1 cent over the fourth quarter. Continuous incremental growth in asking lease rates is due to demand outweighing supply. Class A product continues to be nearly nonexistent, causing rental rates to rise for class B and C product.
The Greater San Fernando Valley continued to demand premium pricing, with an average asking rate of 77 cents per square foot, unchanged from the fourth quarter.
The region’s overall vacancy rate was 1.2%, down from 1.3% in the fourth quarter. Mid-Counties’ rate of 0.5% was down from 0.7%, remaining the lowest in the region. Vacancy continued to fall. In markets such as Central Los Angeles, South Bay and Mid-Counties, it was at its lowest known level ever, and that isn’t expected to change. A good portion of new-to-market supply is in sublease availabilities.
Availability in the region was down to 4.5% from 4.6% the prior quarter. It has continued to fall due to demand outpacing available supply.
The market generated over 7 million square feet of gross activity during the quarter, a majority under 100,000 square feet. Fifty-one percent of that was in the South Bay and Central Los Angeles areas.
The market generated over 1.2 million square feet of positive net absorption, with Central Los Angeles and the San Gabriel Valley leading the way. Occupancy gains occurred in all submarkets outside of Ventura.
There are over 3.8 million square feet under construction, the South Bay and San Gabriel Valley accounting for the majority.
Data and analysis provided by CBRE Research
