The overall office market in Los Angeles County showed continued strength in the fourth quarter despite a rise in the vacancy rate and net absorption that turned negative over the three-month period, as more space came onto the market than was leased.
A contributing factor to that 182,000-plus square feet of negative net absorption is the nearly 1.9 million square feet office space under construction that will eventually come onto the market, most of which is going up on the Westside – particularly Culver City, Beverly Hills, Santa Monica and Playa Vista.
Some of the new space might be leased but not yet occupied, which can throw off real estate metrics. Other factors can also alter the picture, real estate brokers say.
“Negative net absorption (can be) driven by some subleasing activity,” said Henry Gjestrum, senior analyst for Chicago based Jones Lang LaSalle Inc., which provided the fourth-quarter office market statistics.
Total office inventory throughout L.A. County rose about 0.1 percent, or more than 223,000 square feet, to nearly 192 million square feet.
Downtown, Tri-Cities of Glendale, Pasadena and Burbank, and the Westside each saw negative net absorption in the October-to-December period. Such a development could prove to be beneficial – especially as fourth-quarter Class A rents rose to $3.69 from $3.47 a year ago, brokers say.
“A little bit of negative net absorption might loosen up some space for tenants,” said Devon Parry, senior research analyst at Jones Lang LaSalle.
It looks as though tenants will soon have more options. About 1.9 million square feet of office space was under construction in the fourth quarter, a 58 percent increase from the third quarter. Much of the construction, about 816,000 square feet, took place on the Westside. More than half of that amount - 456,000-plus-square -feet - was underway in Culver City.
The Westside’s office vacancy rate bumped up to 14.8 percent in the fourth quarter. Century City and Santa Monica had some of the lower vacancy rates across the submarket.
Class A rents continue to be the highest on the Westside – a whopping $5.01 per square foot, up five cents from the third quarter and 18 cents year over year.
The marriage of technology and entertainment continues to impact Los Angeles County – with Hollywood being the major beneficiary. The relocation of Netflix Inc. from Beverly Hills east to a 14-story tower at Sunset Bronson Studios in Hollywood is emblematic of the shift.
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