Overall tenant demand in the Los Angeles market is fairly modest, although some market areas, like West Los Angeles and the San Fernando Valley, are experiencing stronger activity driven by increased demand for technical services and healthcare.
West Los Angeles, Playa Vista and Hollywood are demonstrating the most demand, while Encino and Sherman Oaks in the San Fernando Valley continue to excel.
Q2 Net Absorption Levels
Second-quarter net absorption levels in Greater Los Angeles were positive, led by Ventura County and West Los Angeles. Greater L.A. recorded 272,744 square feet of positive net absorption in the office market, while Ventura County recorded 139,503 square feet of positive absorption. West L.A. recorded 280,187 square feet. Year-to-date net absorption, despite a strong second quarter, still sits negative at 116,713 square feet. Six of the nine market areas had positive net absorption.
Consequently, the overall vacancy rate in Greater Los Angeles declined to 17.1% by the end of the quarter, a drop from the first quarter’s 17.4%—the same figure recorded a year earlier. The direct vacancy rate, which has hovered between 16% and 17% for the past 12 quarters, ended at 16.4%. The market is continuing to recover at a slow and measured pace, but the direct vacancy rate is still well above the prerecession low of 8.9% in 2006 and 2007.
In the San Fernando Valley—particularly the Central Valley—Sherman Oaks and Encino are outperforming most other major market areas, with an 11.8% and 12.1% direct vacancy rate, respectively. The San Fernando Valley recorded the third-highest positive net absorption of any suburban submarket, at 63,470 square feet.
Office projects under construction total approximately 415,000 square feet in Greater Los Angeles, similar to that of the 2012 year-end.
That is considerably lower than 2008, when the market had 4.7 million square feet of development activity.
Industrial Market
Occupancy levels for the industrial market remain high. Currently, 6.7% of the inventory is available, while 2.3% sits vacant. The overall vacancy rate is unchanged from the previous quarter, while the direct vacancy rate, which excludes sublease space, ticked down to 2.2%. Inventory levels were low, but the region’s overall lease and user sale activity increased by approximately 3% from the first quarter, with a total of 10.2 million square feet.
The average asking lease rate rose by 3 cents to 59 cents per square foot. The tight vacancy rate, coupled with new construction activity, will continue to move up asking rents into next year by an expected 5.5%, placing them near late- 2008, early-2009 levels.
Activity among users increased from the first quarter. A total of roughly 10.2 million square feet of gross leases and user sales was recorded, 29% of which were deals 100,000 square feet and larger.
Net absorption totaled more than 547,000 square feet of positive activity. Three of the eight submarkets experienced positive net absorption greater than 100,000 square feet, led by the South Bay with 1.2 million square feet. The Ventura submarket experienced the most negative net absorption, with 661,852 square feet, mainly due to vacancies left by Harbor Freight, which moved facilities to the Inland Empire.
Approximately 347,000 square feet of speculative product was finished and delivered to the market, while nearly 3 million square feet was in the construction phase.
Data and analysis provided by CBRE Research.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
