Office Market
Indicators point to a tempered national economic recovery that will affect all segments of the commercial market.
Recent declines in unemployment claims seem to indicate a labor market on the mend. Moderate job growth is expected this year, although unemployment likely will remain elevated due to increases in the number of job seekers.
Corporate profits continue to show strength, and many companies are moving from cost-cutting to hiring. In the next 12 months, total Los Angeles employment is forecast to eke out a gain of 3,700 jobs, nearly flat from a year earlier. Office employment is projected to grow by 24,600 jobs, a 3% increase. The professional and business services employment sector is expected to post the best job performance in the next two years in L.A. County.
Leases in 2010 included more renewals. The trend indicates that tenants are attempting to capitalize on favorable market conditions. Few of the deals saw tenants take more space. Many took less.
Well-capitalized property owners likely will continue to keep tenants in place and lure others away from debt-ridden competitors, using improvement packages and rent discounts. The concessions have begun to shrink, however, an indicator of an improving market.
As the market heads toward recovery, there will be a continued flight to quality. Expect better buildings to fill their vacancies first, with class B and class C properties lagging. Through 2011, selective tenants will look to trade up from class B to class A space and to take advantage of discounted rates.
Industrial Market
The ports of Los Angeles and Long Beach saw a rebound in 2010 as shipping traffic increased. The gains, along with strong consumer sales during the fourth quarter, brought an uptick in demand for industrial space as some users looked to expand.
The vacancy rate for industrial space dropped from 3.5% at midyear to 3.3% by the end of the fourth quarter. Total gross activity for the quarter was 9.3 million square feet. Net absorption also was positive during the quarter, totaling nearly 1.2 million square feet. That marked the third consecutive quarter of positive net absorption growth, the first gains since 2007.
The industrial market should continue to see modest increases in activity this year as companies begin to hire again. But the average quarterly pace still will be below pre-recession levels.
Data and analysis provided by CB Richard Ellis Research and Consulting.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
