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Class A Office Rents in LA County Reached Highest Level in Seven Years and Will Continue to Rise

8/04/15

Cushman & Wakefield has put together an overview of the Greater Los Angeles office market at the midpoint for 2015. Below is that summary, provided to us by C&W:

ECONOMIC OVERVIEW

Los Angeles County’s unemployment rate decreased in May to 7.6%, from 8.3% one year ago. In the last twelve months, nonfarm employment increased by 100,500 jobs, for a 2.4% annual growth. Educational and health services led all industry gainers and added 30,100 jobs with health care and social assistance adding 21,400 jobs and educational services creating 8,700 jobs. Other industries recording job gains included professional and business services (up 10,100 jobs), government (up 12,200) and information (up 2,400), and financial activities (up 800). As of May, the total number of nonfarm jobs totaled 4.3 million which has finally surpassed the pre-recession peak reached in 2007.

HEALTHY MARKET FUNDAMENTALS

Los Angeles flourished with strong market fundamentals across the board in second quarter. As the lines between creative and traditional office product and users blurred, so did the lines between submarkets. Tenants who once would not consider coming east from the beach submarkets are looking as far inland as Downtown for options.

Overall vacancy decreased to 15.4% for the county. Decreases exceeded 2 percentage points (pps) year over year in nearly every submarket with TriCities leading with a 3.2-pp drop. Leasing from all industry sectors totalled 7.2 million square feet (msf) for the year, up 4.0% over last year. El Segundo, Playa Vista, Burbank and Hollywood contributed the most to the increase.

Occupancy gains increased 83.2% over last year to 1.8 msf of positive absorption. More and more companies expanded, which finally began to outpace some of the downsizing still occurring. This downsizing has slowed dramatically, however, and as a whole decreased to about 10.0% give back upon renewal from 20-25% just a couple of years ago.

Solid rent growth in the second quarter marked the third quarter in a row that rent growth exceeded 5.0%. Year-over-year rent grew by 5.7% to $2.77 per square foot per month (psf/mo).

Sales activity outpaced the first quarter and pushed into even higher price territory. Approximately 72 transactions totaling $1.4 billion were completed. Foreign investors continued to focus on core, trophy and multifamily assets, while domestic investors concentrated on creative office conversions across Los Angeles.

OUTLOOK

The tech and entertainment industries continue to shape the Los Angeles office market. New submarkets are garnering attention, such as East Hollywood, that weren’t on the radar last quarter. The market is adapting to meet the needs of the burgeoning tech industry as well as the changing needs of traditional office tenants looking to expand or migrate from traditional space.







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