The broader Los Angeles County commercial real estate market lost ground in the first quarter and the countywide vacancy rate inched higher as more inventory came back on the market.
The county has lagged much of the country in recovery and still has one of the highest unemployment rates of any U.S. metropolitan area. Ongoing downsizing at entertainment, legal and financial services firms contributed to vacancy rates rising in nearly every submarket in the first quarter.
In all, the county office market gave back nearly 607,000 square feet in the quarter as the countywide vacancy rate rose to 17.6 percent, up three-tenths of a point from the prior quarter and back to the same level as in the first quarter of 2012, when the region was first registering recovery. Class A asking rents declined to $2.90 a foot, a penny lower than the previous quarter, though they remain higher than the $2.74 recorded in the year-earlier period.
“Despite the fact that there has not been a ton of construction over the past several years and there is pent-up demand, there are many companies on 10-year leases that are restructuring,” said Mike McKeever, senior vice president at Jones Lang LaSalle Inc. “Most will give back space. Until the employment data changes, the market is going to be very challenging, especially for Class B and C assets.”
Foreign investment continues to be a bright spot in the region, illustrated by the March announcement that Singapore real estate investment company Overseas Union Enterprise would purchase the U.S. Bank Tower at 633 W. Fifth St. for $367.5 million, or about $265 per square foot, from MPG Office Trust Inc., which is unwinding its real estate portfolio. The deal for the 1.4 million-square-foot building, the tallest west of the Mississippi, is set to close in June.
“From a macro position, people around the world are looking for hard assets to put their money in where they are getting returns right now,” said Jonathan Larsen, regional managing principal at Cassidy Turley. “For those who want to park their money, they want to be in real estate.”
The county also benefits from its symbiotic relationship with the flourishing Bay Area. Silicon Valley companies are establishing satellite offices in Southern California, most, including Google Inc., YouTube Inc. and Facebook Inc., locating on the Westside. Microsoft Corp. leased two spaces in the first quarter, one in Santa Monica and another in Playa Vista, consolidating its Southern California operations on the Westside. Larsen said Amazon.com Inc., which has industrial space in the Inland Empire, is looking for 75,000 to 80,000 square feet of office space for its entertainment division on the Westside.
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