The L.A. office market saw more than a quarter-million square feet of space put back on the market in the first quarter, but analysts framed the early 2017 setback as a blip in an otherwise strong economy.
“It’s not a sign of slowdown in the market but of an economic pause in the first quarter,” said Devon Parry, a research analyst at Jones Lang LaSalle. “We do expect velocity to come back in the balance of the year.”
The market saw negative net absorption of 293,470 square feet, according to JLL, a tiny slice of Los Angeles County’s 190 million square feet of Class A office space.
The county’s average vacancy rate rose a little more than a half-point from the prior quarter to 15.2 percent from 14.6 percent. CBRE research analyst Petra Durnin said first quarters aren’t typically known for showing robust growth.
“The year just starts out quieter and tends to pick up steam,” she said.
Average monthly rents countywide remained strong, climbing to $3.62 a square foot in the first quarter from $3.47 a square foot in the prior period.
L.A.’s coveted Westside office market took the biggest hit to absorption, with more than 560,000 square feet returned to the leasing pool, according to JLL. West Hollywood alone gave back 313,641 square feet, much of it due to marketing firm Interpublic Group decamping to Century City.
Meanwhile, the Westside’s vacancy rate jumped to 15.7 percent in the first quarter from 13.4 percent in the prior quarter, stemming in large part from the addition of the 400,000-square-foot Brickyard in Playa Vista coming on the market. The Tishman Speyer project has leased more than 50,000 square feet to Loyola Marymount University in a 12-year deal done in February, but 350,000 square feet are vacant.
The Westside remains L.A.’s priciest market, and El Segundo seems poised to catch the spillover, with 11.4 percent vacancy and rents on the rise.
“There’s still not a ton of migration from the Westside to El Segundo but everyone seems to be looking,” said CBRE research analyst Maximilian Saia.
Creative office space continues to come to market in El Segundo, and NSB Associates last month began constructing an 80,000-square-foot office building designed by architect Frank Gehry.
Across town, Glendale, with a 10.6 percent vacancy rate, proved to be an office-investor hot spot despite Nestle USA’s announcement in February that it plans to relocate its headquarters to Virginia. DivcoWest purchased the 547,300-square-foot Glendale Plaza office tower for $179 million, Onni Group picked up the 396,000-square-foot Glendale Center for $83 million, and Lincoln Property Co. with Long Wharf Capital acquired a 96,140-square-foot office building at 520 N. Central Ave. for $19.6 million. Divco and Lincoln cited the market’s growing number of apartments, shops, and restaurants as reasons to invest.
Retailers continued to feel the effects of rocky times in the mall industry.
As it shuttered 100 stores nationwide, Macy’s Inc. sold its Westside Pavilion location to GPI Cos. for $50 million in January. Macy’s still occupies the space, but its future there seems shaky since the company is opening a flagship this month at Westfield Century City.
The industrial market remains tight, with L.A.’s vacancy at a rock-bottom 0.9 percent, giving landlords the upper hand. Average monthly rents increased 5 cents to 75 cents a square foot in the first quarter from 70 cents in the prior period.
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