The Greater Los Angeles office market had a strong year in 2013, as all real estate indicators had slight year-over-year improvement.
Overall improvement was predominantly in class A office space, but class B space was also a strong driver of growth in many submarkets, such as downtown and West Los Angeles. The Tri-Cities and San Fernando Valley submarkets also contributed to the strengthening of the overall office sector. Growth remained consistent throughout the year, spurred by an upturn in consumer confidence and a strengthening economic landscape.
Tenant demand in the region was split between traditional high-rise office users and new-wave technology and media companies demonstrating continued interest in the “Silicon Beach” area.
West Los Angeles and the Tri-Cities continued to accelerate overall improvement through their incubation of high-growth technology and entertainment companies, the same story line that’s been developing throughout the real estate recovery.
Greater Los Angeles closed 2013 with a year-end total of 477,000 square feet of absorption, continuing the 2012 trend of sluggish positive growth. That was down compared to 2012’s total of 646,000 square feet but considerably better than the 3.5-million-square-foot average lost between 2008 and 2010.
There has been more than 1 million square feet of negative absorption in the downtown L.A. submarket since early 2011, directly linked to downsizings, whereas West L.A. is exploding with activity in leasing and investment sales. The 400,892-square-foot Nestle lease in Tri-Cities was renewed, and Riot Games signed a lease at the Element: LA campus in Santa Monica for 285,000 square feet, one of the largest leasing transactions of the past five years.
The overall vacancy rate in Greater L.A. dropped from 17.4% in the fourth quarter of 2012 to 17.1% in the fourth quarter of last year.
Overall asking lease rates in Greater L.A. increased in every quarter of 2013, finally settling at $2.54 full-service gross, per square foot, a 2.5% increase year-over-year.
The average asking lease rate has increased by 8.1% since the bottom of the market in 2011.
CBRE Econometrics Advisors forecasts rents continuing up at an average rate of 2.1% for 2014 and 2015. Rental rates are expected to grow at a more accelerated rate across all classes as vacant space continues to shore up.
Post-recession, the Los Angeles office market is having the greatest amount of construction since early 2010. Building of new space is active in five of the nine Greater L.A. submarkets.
The Greater Los Angeles industrial market continues to have healthy levels of demand.
There were approximately 9.2 million square feet of lease transactions and user sales in the fourth quarter. The majority of the activity occurred in spaces 10,000 to 99,999 square feet, which made up 71.1% of the total gross activity.
Data and analysis provided by CBRE Research.
