The L.A. office market saw a solid third quarter, with the vacancy rate narrowing to 14.8 percent from 16.2 percent in the same period last year, according to data from Jones Lang LaSalle. The tightening market pushed average asking rates up to $3.43 a square foot – just a small bump over the previous quarter, but a notable increase over the $3.21 rate in the third quarter of last year.
Petra Durnin, CBRE’s research director, said Los Angeles is benefiting from diversification within the growing technology industry.
“A lot of market fundamentals are still strong, with lots of demand and tenants looking for space,” she said. “The year will finish strongly.”
Technology, financial, legal, media, and co-working companies led the charge in picking up the biggest chunks of new space. Oracle Corp., for example, leased 92,350 square feet at the Water Garden in Santa Monica in one of the biggest office leases of the quarter, reflecting the software company’s need for a bigger physical footprint. In a deal nearly as large, media and entertainment company Awesomeness.TV took 86,000 square feet at the Pen Factory, a forthcoming office development in Santa Monica.
The Westside continues to be the priciest L.A. market, with average rents last quarter hitting $4.75 a square foot versus $4.39 in the same period last year. Santa Monica, Beverly Hills, and West Hollywood rates all topped $5 a square foot. Building values are high, too: Playa Jefferson, which counts Facebook Inc. as a tenant, fetched $843 a square foot in its $165 million sale to Rockwood Capital.
But untested markets are also seizing interest, particularly the Arts District, a few miles beyond the downtown core. At Row DTLA on the edge of the industrial district, Santa Monica co-working firm Real Office Centers claimed 27,000 square feet in a 15-year deal with an option to nab an additional 23,000 square feet. Leasing activity at other nearby office projects could soon speed up now that Warner Music Group Corp. earlier this month signed a long-term lease for 257,000 square feet at the Ford Factory.
The South Bay saw the biggest vacancy drop compared with last year, tightening to 17.9 percent from 21 percent. Downtown followed with 16.3 percent vacancy compared with 18.2 percent in last year’s third quarter. Hollywood continues to be an outlier in the data, with vacancy at 27.6 percent. That’s simply because companies that previously inked major leases, such as Viacom Inc. and Netflix Inc., have yet to move in.
All this prompted Los Angeles to record its 13th consecutive quarter of net occupancy gains, according to data from Newmark Grubb Knight Frank. Despite that, vacancy remains considerably higher than Los Angeles County’s low point of 9.2 percent in 2007.
Vacancy in L.A.’s industrial market remained below 1 percent, right where it was in the second quarter, marking a major drop from 2.5 percent in the third quarter of last year.
“The rapid expansion of e-commerce and parcel delivery companies now focused on capturing the last-mile and same-day delivery customers has contributed to significant absorption and employment in the L.A. market,” Mike Fowler, JLL executive vice president, said in an email. “We see the next wave, partially driven by consumer demand for fresh produce and grocery opportunities, continuing this trend.”
Two enormous leases inked last quarter revealed demand for chunks of space in infill markets.
Sony Corp. renewed for 521,856 square feet in Carson, while United Parcel Service Inc. signed up for 521,816 square feet at the just-constructed Brickyard site in Compton. The latter deal is estimated to be worth at least $44 million. An additional half-million square feet there remain available for lease.
Overall, average industrial rates across Los Angeles are 73 cents a square foot compared with 67 cents a square foot in the third quarter of last year. Without a great deal of construction set to add space, the rates could easily increase over the year to come.
