The Greater Los Angeles market saw a drop in its vacancy rate along with positive net absorption during the first quarter, a turnabout on both measures after more than three years of downward trends.
The first-quarter results appear to be a sign of a pending recovery, but it’s worth noting that market fundamentals still are a bit soft.
Any rebound is expected to be slow as the economy continues to strengthen.
Signs of improvements in the overall economy include decreases in jobless claims, rising employment levels and strengthened consumer confidence.
The commercial real estate industry appears to be following suit and moving past the bottom of the cycle, but the pace of improvements for the market and the larger economy is slow and inconsistent.
A number of companies did start to get more comfortable with the pace of recovery and their own prospects for growth in the first quarter.
Tenants with flexibility are examining market conditions and taking advantage of opportunities that come with vacancy rates that remain relatively high.
Recent improvements and attractive conditions for leasing are expected to increase demand for space during the next six to eight months, bringing more positive net absorption and continued declines in vacancy rates.
CBRE-Econometric Advisors forecasts a subdued outlook on lease rates. Landlords likely will continue to compete for tenants by offering concessions and flexible lease terms.
The leasing market is expected to begin to stabilize by the end of the year, leading to modest increases in rents next year.
That’s also expected to be a slow process and Los Angeles likely will lag the national office market during the recovery.
Demand for industrial space in the Greater Los Angeles market gradually has increased in the past six months.
The vacancy rate dropped to 3% in the first quarter from 3.3% at the end of 2010, with 11 million square feet of gross activity and 2.8 million square feet of positive net absorption. That continued a four-quarter growth streak.
Average asking lease rates, which have been sluggish in the past few quarters, appear to have reached the bottom and are forecasted to grow at a slow pace this year.
The gains have led some investors to consider construction, and industrial development is expected to increase over the next 12 to 18 months.
Data & Analysis provided by CB Richard Ellis Research
