Office Market
The Greater Los Angeles office market once again posted negative activity and increased vacancy rates during the second quarter. The weak job market, especially, has played a significant role in the region’s slow economic recovery.
Los Angeles County’s unemployment rate is now 11.9%, nearly 3 percentage points above the nationwide level. And while Los Angeles is known for its entertainment, travel and tourism, the area’s largest employers include defense and aerospace contractors, many of which are in the midst of downsizing.
The office vacancy rate in Greater Los Angeles rose to 18% at the end of the second quarter, significantly higher than the point generally seen as prompting increases in lease rates that would match inflation.
Rents remain well below prerecession levels and will take years to fully recover due to weak demand for space tied to the still-sluggish job market.
A recent report from CBRE-Econometric Advisors offered tempered optimism for improvements next year.
“The outlook for the Los Angeles office market remains weak, but we are cautiously optimistic that improvements are in the offing,” the report said. “The severity of the correction has eased and the market will enter recovery mode by year’s end. Rent growth remains another year away.”
The report indicated that it will likely take several years for office rents to reach “their pre-recession peak.”
Industrial Market
Traditional manufacturing activity—including apparel, aerospace and metals products—appears to be expanding. Overall activity in high-tech, biomedical and information clusters also is picking up throughout Southern California.
Industrial demand in Greater Los Angeles has gradually increased over the past six months. The direct vacancy rate dropped from 3.3% at the end of 2010 to 2.9% at the end of the second quarter.
Total gross activity for the quarter was about 9.8 million square feet in Greater Los Angeles. Net absorption also was positive during the quarter, totaling more than 1.1 million square feet. That marked the fifth-consecutive quarter—and only the fifth quarter since 2007—of positive net absorption.
Demand is expected to remain strong during the remainder of the year. A lack of new development amid the relatively strong market should bring the vacancy rate and availability rate to down through the end of next year.
The recent report from CBRE-Econometric Advisors projected a better outlook in general for the industrial segment.
“Despite risks surrounding the Los Angeles industrial outlook, the pieces appear to be in place for the property market to continue its recovery,” the report said. “The metro area’s job market has shown some signs of stabilization and increases in demand have started to draw availability down.”
Data and analysis provided by CB Richard Ellis Research.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
