Brokers and analysts might say the Los Angeles County office market is having one of its best years since the peak of the market last decade, but major metrics in the third quarter haven’t gotten the message.
The market broke a seven-quarter streak of positive absorption when it gave back 75,197 square feet in the third quarter this year, according to Jones Lang LaSalle Inc.
It inched the county’s third-quarter office vacancy rate up one-tenth of a point to 16.2 percent compared with the previous period, though it was still four-tenths of a point better than a year earlier.
And yet, local companies were expanding and hiring, megadeals topping 100,000 and 200,000 square feet were closing, and investment sales were hitting record prices in the quarter.
“I think it’s indicative of a stronger economy,” said Hayley Blockley, a senior vice president at JLL’s downtown L.A. office. “We aren’t looking at rent rolls and lease expirations to guide tenant demand anymore. We are looking at expansion to guide tenant demand.”
Further evidence the slight blip in absorption fazed no one is the asking rental rate. The county’s average Class A asking rate shot up 8 cents to $3.21 a square foot from the second quarter – and 17 cents from a year ago.
So what happened to absorption last quarter?
Some of the give-back can be attributed to a few larger firms moving out or downsizing on the Westside, an event that is expected to be a one-time occurrence.
For instance, International Lease Financing Corp. gave back a full floor – about 26,000 square feet – at Century City’s 10250 Constellation Blvd.
That added to the otherwise booming Westside’s increased vacancy rate, which climbed a full point to 14.5 percent with negative absorption totaling more than 461,000 square feet, led by the Century City and Santa Monica submarkets.
Other submarkets saw marked improvement. The Tri-Cities’ vacancy rate dropped nine-tenths of a point to 14.2 percent while the South Bay’s dropped seven-tenths of a point to 21 percent.
What makes it more complicated is that a number of the larger deals that were signed in the third quarter won’t be counted against the office inventory for possibly a few years.
Take Netflix Inc., for instance. In the biggest deal of the quarter, the video streaming and production company agreed to lease more than 200,000 square feet at Hollywood’s Sunset Bronson Studios’ 323,000-square-foot Icon Tower, which is being built by Hudson Pacific Properties Inc. The deal will double the size of office space the company has in Los Angeles, but it won’t go into effect until the building opens in 2018.
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