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12/28/23
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This report was provided by real estate services firm Kidder Mathews
Market Highlights
• Direct market vacancy in Los Angeles currently at 3.7%.
• At the conclusion of the year, the average asking rate was lowered to $1.75/SF on a triple net lease (NNN) basis.
• Real time cap rates are minimum mid 6s.
Market Drivers
Based on TEU counts coming out of the Ports of Los Angeles and Long Beach, import numbers are showing signs of improvement. Without much of a peak season, we now wait and see how the Chinese New Year shapes up as the next key milestone.
Leasing Market
Negative net absorption continues to rule the market. The renewal market remains relatively strong as companies elect to stay put and avoid the disruption and costs of moving. We are seeing a decrease in asking rental rates for direct availabilities and an increase in concessions, particularly in free rent for any new transaction. Most of the activity in new transactions is in smaller, 50k sf and under offerings. Activity in the 75k sf and upsize range is few and far between.
Sales Market
Sales activity in 2023 was off dramatically due to interest rate increases, cap rate increases, and the challenge of determining where lease rates are now and where they are headed in the near term. Buyers cannot impute rental increases in the current environment, which is impairing underwriting. With few exceptions, occupier buyers remain largely on the sidelines as do institutional investors.
Near Term Outlook
The Fed’s pause in raising rates, and perhaps even the specter of rates being lowered in the middle of next year should provide the stability necessary for sale velocity to pick back up. Continued improvement of TEU counts flowing through the ports should provide the much-needed boost to increase leasing, but it is not going to happen overnight. Tenants are going to need time and improved visibility of their needs before C Suites have the confidence to expand and relocate. General sentiment is expecting 2024 to be a second-half year and that the first few quarters of the new year will continue to be challenging.
The information in this report was composed by the Kidder Mathews Research Group and prepared by Kidder Mathews Director of Research Gary Baragona. Data source: CoStar
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