L.A. COUNTY: Economic Gains Propel County Into Positive Territory to Start Year

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With the national recovery picking up during the first quarter, the Los Angeles County office market made modest gains as employers planned for growth.

After a soft fourth quarter, the market absorbed 550,000 square feet of space. Some brokers see it as a return to optimism, which was fleeting just months earlier when prerecession leases were downsized or not renewed.

Brian Niehaus, vice president at the Century City office of Jones Lang LaSalle Inc. pointed to the particular strength of creative tenants in Hollywood, as well as in Santa Monica and neighboring Playa Vista. The Westside market absorbed 110,000 square feet during the quarter.

“Technology, social media and traditional entertainment are the three industries that have continued to outperform the rest of the market,” he said.

Countywide office vacancy rates fell one-tenth of a point to 17.7 percent. Landlords, eager to participate in a return to recovery, dropped Class A asking rents two cents to $2.79. The market mirrored positive net absorption nationwide as meager construction of new office space led to a cap on supply.

But with tenants unsure of how lasting the job growth and economic recovery will be, many looked for short-term leases or deals offering maximum flexibility to shed or add space before terms are up.

That’s one reason Hollywood’s largest lease of the quarter, 35,000 square feet to New York company WeWork at 7083 Hollywood Blvd., is a sign of the times. WeWork subleases executive suites to small firms, many in the entertainment industry, that want short-term space ready for immediate occupancy.

Meanwhile, growing technology firms have continued to sign substantial lease deals, with some choosing up-and-coming markets such as the lower Westside now that Santa Monica has become so pricey. In February, San Bruno-based YouTube LLC leased 40,000 square feet at the Ratkovich Co.’s Hercules Campus in Playa Vista. The campus is a former Howard Hughes aircraft manufacturing facility that is being renovated to attract tech and media companies.

Tenants had their choice from a plentiful market after the fourth quarter, when many companies chose not to renew their prerecession five- or 10-year leases, or chose to decrease their space to reflect staff reductions.

Indeed, downtown Los Angeles still has an office vacancy rate of 17.2 percent, nearing historic highs. Though nobody is forecasting for downtown’s legal and professional services firms to show the explosive growth of the tech sector, there were some big law firm deals during the first quarter; Chicago-based Kirkland & Ellis LLP and Atlanta’s Alston & Bird LLP signed five- and 10-year leases, respectively. The market absorbed some 145,000 square feet after giving up about 540,000 square feet in the fourth quarter.

“People are saying, ‘We’re going to plan for some hiring but we’re going to do it carefully,” said Chris Cooper, managing director at Avison Young in Westwood.

Despite sluggish cargo volumes at the Port of Los Angeles, the optimism spread into the industrial markets as well. Both the South Bay and San Gabriel Valley had positive net absorption for their lower-cost industrial space, some of which will house imports from Asia.

Still, there were plenty of losers during the quarter. Burbank and Pasadena lost tenants to neighboring and wide-open Glendale and its cheaper rents. But another lower-rent area, Wilshire Center, which includes Koreatown, gave space back as tenants either shut down or upgraded to better addresses.

Cooper said there’s still plenty of money on the sidelines as economic and political uncertainty abounds, adding that the most important factor will be job creation.

“People are waiting to see what the political environment is going to be and what’s going to happen with unemployment,” he said.

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