Something remarkable happened last quarter in Los Angeles County’s office market.
Nearly all submarkets showed lower vacancy rates as the commercial real estate recovery went into full swing.
Overall, the county vacancy rate fell to 16.2 percent in the quarter, one point lower than a year ago, as companies took 630,358 square feet off the market, according to Jones Lang LaSalle Inc.
That tightening allowed landlords across the 193 million-square-foot market to push the county’s average monthly Class A asking rates up 19 cents from the previous year’s level to $3.09. Rates were up 5 cents from the previous quarter.
“This was probably the strongest year in commercial real estate in Los Angeles County since 2006,” said Michael Soto, research manager at Transwestern. “Over the last two years, we have talked about market recovery but have always qualified it by saying it was being driven by (certain) areas or types of properties. In 2014, the recovery was much more broad based and you had market fundamentals improving across the entire market, from San Fernando Valley to the South Bay.”
One of the biggest signals is that fact that there were more than 10 deals done for more than 30,000 square feet in the county last quarter, according to Jim Kruse, senior managing director at CBRE Group Inc.
“The last time I saw something like that was ’06 (during the height of the market),” he said. What’s more, “our tenants in the market list – a list of who’s touring for space – is a robust list.”
Another signal was that much of last quarter – and the year as a whole – could be defined by a steep growth in investment sales.
Arty Maharajh, vice president of research at brokerage DTZ, said he calculated more than $60 billion in investment sales in the county last year.
“Last year and the previous year together combined to equal more investment sales than we saw in 2007, which was the most commercial real estate investment we have ever seen,” he said. “More investment sales activity supports the notion that L.A. is a global gateway city and the recovery here is legitimate.”
Walter Conn, president of brokerage services at Charles Dunn Co. Inc., said that the improving market and economy in Los Angeles is contributing to the boom in investment sales now. Unlike some other large cities such as New York or San Francisco, there’s still upside left in the office market.
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