The Greater Los Angeles office market started to recover last year, although market fundamentals are soft, as job growth continues to be flat and the unemployment rate remains high.
The overall vacancy rate was 17.8% in the fourth quarter, compared to 17.9% in the prior period. Tenant demand remains modest and most business owners are clearly cautious, as the risks to the volatile economic market remain present.
Net absorption ended the year on a strong note, however, as a few large transactions closed during the fourth quarter, producing more than 563,000 square feet of activity. Those deals brought the year-to-date total to more than 1.1 million square feet.
The largest transaction during the quarter occurred in El Segun-do, where DirecTV ex-panded into 300,000 square feet.
Average asking lease rates have steadily de-clined since late 2007 but have been leveling out over the past year. The latest 12-month growth rate is negative 0.4%, while the latest three-year growth rate averaged negative 3.3% per year. The rate actually increased slightly during the fourth quarter for the first time since 2007.
The office market is in a recovery that will prove to be slow and tentative.
Pricing power will slowly begin to shift from tenants to landlords over the course of the next year. The outlook is for rents to increase just less than 1% over the next two years.
Industrial Recovery
The Greater Los Angeles industrial market has performed relatively well coming out of the recession. Tenant demand returned to the market in 2010 and 2011.
Port activity has recently slowed, with about 586,000 loaded inbound containers passing through the ports of Los Angeles and Long Beach in November, representing a 3.6% drop compared with a year earlier. Year-to-date container traffic had declined by roughly 1% compared to 2010, as of November.
Fourth-quarter gross activity totaled about 9.1 million square feet in Greater Los Angeles in the fourth quarter, down slightly compared to the prior period. Net absorption increased slightly, totaling more than 500,000 square feet. The vacancy rate market held steady at 3.1%, down slightly from a year earlier.
Net absorption was not quite as strong, totaling positive 475,000 square feet. Tenant activity is expected to be relatively flat during the next three to six months before demand for space increases again in mid-2012.
Analysis and data provided by CBRE Research.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
