The Greater Los Angeles office market continued to face challenges despite some positive signs in the third quarter.
A soft market helped drive the direct vacancy rate up to 16.8 percent for the third quarter, more than eight points above the pre-recession low in 2007.
The overall vacancy rate was 17.9% in the third quarter, down from 18% for the prior period.
Continued uncertainty about the economy appeared to be a main factor.
A bright spot could be seen in the moves by several large tenants to take advantage of landlord concessions by renewing leases early.
Unemployment in the Greater Los Angeles area was 12.5% in the third quarter.
There was relatively strong growth in office jobs in the Greater Los Angeles area, which saw a 2.6% year-over-year increase compared to 1.2% for all major U.S. markets.
Modest Improvements
The modest improvements are expected to prompt an average increase in lease rates of about 1% over the next two years—an indicator that the recovery cycle will be slow and deliberate.
The Greater Los Angeles industrial market leveled off in the third quarter after five quarters of consecutive growth.
The direct vacancy rate of 3% percent and overall vacancy rate of 3.1% held steady against the prior period.
Jobs
Overall job growth and employment in the industrial sector has remained flat for the past year, although international trade and traditional manufacturing offered a positive signal by running counter to the overall trend.
Total gross activity in the industrial market was 10.6 million square feet in third quarter. There was 32,000 square feet of negative net absorption.
Demand is expected to be flat during the current quarter before increasing in early 2012.
“Despite risks surrounding the Los Angeles industrial outlook, the pieces appear to be in place for the property market to continue its recovery,” according to a recent report from CBRE Econometric Advisors. “The U.S. economy is transitioning toward a self-sustaining expansion, which will have a positive impact on trade flows through the nation’s warehouse markets, something that will allow Los Angeles’ industrial market to strengthen and to return to its pre-recession form within our six-year forecast horizon.”
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.
