The Los Angeles County office market suffered through yet another rough quarter, but some optimistic brokers said they are seeing signs that a bottom is near.

While nearly 1.2 million square feet of office space was put back on the market between April and June the second highest amount since Grubb & Ellis Co. began tracking the data in 1983 it was less than half the total of the previous quarter.

It speaks to the depth of the current recession that brokers are optimistic even after enduring the second worst quarter on record. While the situation is still far from good, to some it appears to be getting less bad.

"We certainly don't see a swift recovery, but we do feel like a lot of the punishment has been absorbed," said Mark Sullivan, executive vice president, director and Southern California regional manager for Studley Inc.

Another sign of good news: lease rates, which had been plummeting, began stablizing somewhat. Asking rents for office space countywide fell by just a penny to $3.17 per square foot since the first quarter, though they were off 38 cents from the same time last year.

Still, companies that had resisted making cuts as the recession dragged have been bighting the bullet, closing up shop, consolidating and otherwise unloading unwanted offices. As a result, landlords dumped more than 3.6 million square feet of space back on the market in the first half of the year more than all of 2008.

The Westside suffered one of its more dramatic setbacks in June when Fox Interactive Media pulled out of a plan to move into a 420,000-square-foot space in Playa Vista it would have been the biggest office leasing deal in more than a decade.

But in the San Fernando, San Gabriel and Santa Clarita valleys, the large losses eased up as midyear approached.

"We've seen a lot of right-sizing," Sullivan said. "It is a positive trend in the sense that a lot of the space that large users needed to shed, they have."

The countywide vacancy rate climbed to 14.8 percent, one point higher than the previous quarter.

J.C. Casillas, assistant vice president and client services manager for Grubb & Ellis Research Services, said that number underestimates the total space available. Taking into account all available space, such as that leased but unfilled by tenants, the rate is actually 18.7 percent, he said, suggesting that vacancy could climb higher if the recession lasts longer than expected.

"I don't think that's going to happen, but it gives you a measure of where the vacancy could go," he said.

As it stands, the vacancy rate is still not as high as the 16.7 percent mark reached in 2002 after the dot-com collapse. During that rough stretch, the office market endured two full years of rising vacancy rates.

But the current downturn, which started in late 2007, is approaching its two-year anniversary, and Casillas said many are wondering whether this one will last much longer.

"That's the million-dollar question," he said.

Solid market

One of the steadiest markets has been downtown Los Angeles.

The area, brokers said, was not overbuilt during the boom times a problem that is now showing up on the Westside. As a result, downtown asking rents have remained remarkably steady. The Class A asking rent was $3.33 per square foot in the second quarter, down just 3 cents from the previous quarter and off only 4 cents from a year earlier.

"Downtown has actually statistically done the best of any of the markets," said Dave Doupe, managing director of the capital markets group for Jones Lang LaSalle Inc.

That's not to say that downtown has not suffered during the recession, though.

New deals are almost nonexistent, brokers said, and the market gave back more than 168,000 square feet of office space in the second quarter as firms scaled back. That number is up sharply from the previous quarter, but still far behind the negative net absorption in the South Bay, where a slowdown in international trade has hampered port-related businesses, and the Westside, where once-sky high rents are coming back down to Earth.

The Westside, which had been a popular spot for law firm and entertainment companies, has already coughed up more than 900,000 square feet of space in 2009. It's telling that one of the biggest deals of the quarter came when Sony Corp. inked a 10-year deal but only for a modest 48,000-square-foot space in Santa Monica's Water Garden office complex.

To attract new tenants, some landlords are resorting to desperate tactics, including per-square-foot signing bonuses, parking incentives and other concessions.

Since the office market is strongly tied to employment, Doupe said he expects a recovery in the market to come six to nine months after unemployment peaks, which some experts believe will happen this quarter.


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