Here’s an overview of real estate activity in Los Angeles County in the fourth quarter, broken down in three categories:
Office
Don’t call it a comeback, but the Los Angeles County office market posted strong gains in the fourth quarter of 2015 after a slight stumble during the previous period.
More than 1.4 million square feet of office space was leased up throughout the county last quarter, helping to drive the vacancy rate down to 15 percent, according to downtown L.A. real estate giant CBRE Group Inc.
“The decline is a positive sign after a slight uptick in the vacancy rate in (the third quarter),” CBRE research analysts Jill Luna and Maximilian Saia wrote in a recent report.
Indeed, the market absorbed way more than the 75,197 square feet that was added during the third quarter – which broke a seven-quarter streak of positive absorption.
In fact, New York marketing giant Interpublic Group of Cos. Inc. more than made up for the entire county’s loss in the third quarter when it signed off on an 11-year deal for 150,000 square feet in November.
The lease, estimated to be worth more than $70 million, was signed at the Plaza in Century City, at 1800 and 1840 Century Park East.
IPG, a publicly traded holding company, further illustrates the strong demand for office space in the Westside submarket, where the vacancy rate fell to 11.8 percent in the fourth quarter, according to CBRE.
Considering the flurry of recent activity on the Westside, it should come as no surprise that submarket absorbed the most space – 710,511 square feet – last quarter.
Though it was nowhere close to matching Westside’s heat, downtown Los Angeles continued to be another bright spot in the overall L.A. office market. Even though the vacancy rate there – 17.6 percent – remained higher than the overall market, it absorbed nearly 52,000 square feet in the fourth quarter.
Downtown law firm Munger Tolles & Olson, co-founded by L.A. billionaire Charlie Munger in 1962, played a key role in the quarter when it leased 152,306 square feet, according to CBRE.
Brad Brian, the firm’s co-managing partner, told the Business Journal last month that the move to 2 Cal at 350 S. Grand Ave. is scheduled for early next year. Its 375 employees will take up more than five floors there after it moves out of its current post at 355 S. Grand.
Investors’ interest in downtown real estate also remained strong in the fourth quarter, highlighted by downtown developer Rising Realty’s purchase of the One Bunker Hill building.
The sale, completed in October, was valued at $92 million, or $337 a square foot, according to real estate information firm CoStar Group Inc.
But the largest sale last quarter went down in Westwood, where UCLA bought the Occidental Petroleum Center for $92.5 million – just under $200 a square foot – according to CBRE.
Meantime, the county’s average asking rental rate showed no signs of slowing last quarter. The average rate across the greater L.A. market climbed to $2.89 a square foot, a five-cent increase from the previous quarter and a 7.2 percent jump from the last three months of 2014.
Again, the Westside and downtown submarkets led the pack. The average asking lease rate on the Westside was a whopping $4.56 a square foot, the highest price in the county. Downtown’s asking price of $3.10 a square foot was the only other submarket to break the $3 threshold.
Despite the gains in the county overall, some analysts aren’t so sure the overall market will be able to sustain 2015’s blistering growth this year.
“Many market participants are approaching the upcoming year with guarded optimism,” CBRE’s Luna and Saia wrote in their report. “With rents returning to prerecession highs and vacancy rates under 15 percent and trending lower, it is widely thought there is not a whole lot of room left for the type of growth seen up until this point in the market cycle.”
Retail
The picture was not quite as rosy in L.A.’s retail sector.
For the first time in 11 quarters, the market recorded negative absorption as it gave back 90,895 square feet in the fourth quarter, according to CBRE.
That forced the vacancy rate across the greater L.A. market to inch up one-tenth of a point to 5.1 percent compared with the previous period.
Bankrupt grocery chain Haggen is partly to blame as it closed several locations across Los Angeles last quarter, CBRE’s Luna and Ashley Hill wrote in a recent report.
Still, Los Angeles continues to boast one of the lowest vacancy rates in the region.
“Although the greater Los Angeles region did report its first quarter of negative absorption since (the first quarter of) 2013, much of this is conditional and due to multiple grocer tenants leaving the market entirely and not owed to a decrease in leasing momentum,” Luna and Hill said in their report.
Overall, 2015 was a strong year for the L.A. retail sector as 922,472 square feet was taken off the market.
No retail developments broke ground in the fourth quarter, but more than 888,000 square feet is under construction – roughly half of which is taking place downtown.
The Stanford Regency Plaza, At Mateo and Oceanwide Plaza projects, which will add a combined 444,147 square feet of retail space downtown, are pushing forward.
Further evidence that demand from retailers remains high, despite the slight blip in absorption, is the asking rental rate.
Overall asking lease rates in the county climbed to $2.31 a square foot, 3 cents higher than the third quarter and a 13-cent increase from the year-earlier period.
Much like the L.A. office market, the highest average asking price for retail space can be found on the Westside. There, the price sits at $7.16 a square foot – 46 cents higher than the previous quarter and more than double the average rate found anywhere else in Los Angeles.
L.A.’s Mid-Wilshire submarket, boasting an average asking price of $3.49 a square foot, is the second most expensive for retailers to open shop.
The overall retail leasing market’s boost in average asking price last quarter represented the biggest increase since 2009. What’s more, rental rates are only expected to go up from here.
Industrial
With only 4.4 percent of industrial space available in the county, demand – and rental rates – continued to climb throughout the fourth quarter.
The average asking lease rate in the greater L.A. region finished the year at 70 cents a square foot, 4 cents higher than the start of 2015 and a 1 cent gain from the previous quarter, according to CBRE.
But because so little space is available, leasing activity was relatively flat in the fourth quarter – and 2015 as a whole.
Indeed, two of the largest leases signed in 2015 came earlier in the year, including Norcross, Ga., packaging company WestRock’s deal for 374,370 square feet in Commerce. That lease came during the third quarter.
The constricted supply has created an industrial market in Los Angeles that certainly favors landlords, CBRE’s Luna and Jamil Harkness said in a recent report.
Even with 2.8 million square feet under construction – plus at least 1.8 million square feet that’s expected to break ground this year – industrial space around Los Angeles is poised to remain in high demand for the foreseeable future.
