The slowing economy continues to wreak havoc on the Los Angeles County office market, with vacancies growing for a third consecutive quarter since the economy began to unravel last year.
Though landlords continued to raise rents in the second quarter the countywide average asking rent for Class A space was up 5 cents a square foot from the previous quarter to $3.55 the vacancy rate jumped to 10.8 percent from 10.1 percent. A year ago, rents stood at $3.10, with vacancies at 9.6 percent.
Even so, asking rents dropped in some submarkets, suggesting that landlords are beginning to concede that the high-flying days are over.
"I think we have a slowing economy, we won't have the job growth, consumer confidence is at its lowest level in 16 years and unemployment is up," said Joe Vargas, executive managing director at Cushman & Wakefield Inc. and regional manager for Southern California.
Still, Vargas holds out hope for an overall flat, rather than significantly depressed, year for the regional market. "I believe we are going to have a stable year with no huge growth or decline in vacancies," he said.
So far this year, high-end office locales have provided the market with some stability. Tony Westside enclaves like Century City and Westwood have experienced year-over-year decreases in vacancy along with increased rents.
Those areas, according to Vargas, are continuing to do well because of their location. "It's very much quality of life, the intellectual capital that is there and everything that goes with it," he said.
But a look at secondary and tertiary submarkets reveals damage already done. Areas like the San Gabriel and Santa Clarita valleys, and the South Bay had negative net absorption, which means that there was less space occupied by tenants at the end of the second quarter than at the beginning of it. In the 187 million-square-foot Los Angeles County market, there was 20 million square feet of vacant space in the quarter.
An economy cooled by last summer's residential mortgage meltdown is the culprit. While Orange County has been hit hard by the exodus of subprime lenders, parts of Los Angeles that also were home to lenders and support services have also been impacted.
"That increase in vacancy can almost all be attributed to the meltdown of the subprime industry," Vargas said. "The ripple effect has gone into residential housing, other mortgage companies and commercial office."
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