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1/29/24
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This report provided by real estate services firm NAI Capital Commercial
At year-end 2023, Century City's office building vacancy increased. Direct vacant office space rose by 18.6% year over year, totaling 1.4 msf of vacant space on the market on a direct basis. Landlords had observed a reduced amount of vacant office space at midyear quarter over quarter; however, the total amount of vacant direct space increased for two consecutive quarters, totaling 219.5k sf of added office space sitting vacant as of Q4 2023.
At midyear, quarter over quarter, vacant sublease office space also experienced a reduction in the office space market. But since then, over the past two quarters, many tenants unloaded square footage, looking to sublease. Sublease vacant office space increased by 17.1% year over year, totaling 185.3k sf of vacant space on the market on a sublease basis.
Landlords have stood firm on their asking rents, driving the average asking rent up by 4.2% from the previous year to $5.93 per square foot per month on a direct basis. However, sublessors, witnessing the increase in quality sublease space entering the market, have signaled their willingness to drop asking rents, initiating a quarter-over-quarter decrease of 1.4% as the competition for a limited pool of tenants in the market intensifies. Nonetheless, the average asking rent for sublease has shot up by 27.9% year over year to $5.78 per square foot per month, further highlighting the probability of their further descent.
Michael Arnold, NAI Capital Commercial Executive Vice President and Founder of the Tenant Consulting Group, highlighted, "Century City is an anomaly compared to the rest of the market as it's one of the strongest submarkets in the country."
He further emphasized that rents are continuing to rise, and vacancies in Trophy and Class A spaces will experience a consistent decline.
Michael noted, "Concessions, while still available and, in certain cases, in abundance, depend on the length of lease terms and the creditworthiness of the tenant. Strong landlords also have the wherewithal to perform and support tenants' needs."
In his anticipation for 2024, Michael stated, "I expect Century City to remain one of the strongest submarkets."
Anticipated to maintain competitiveness, landlords are expected to continue employing concession packages such as free rent, especially given the sizable blocks of vacant space still available. As the market witnesses an increase in sublease space, it is expected that sublessors will increasingly offer rent discounts as lease expiration dates draw near.
This report prepared by J.C. Casillas, Managing Director, Research, NAI Capital Commercial
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