Q2 2012 Los Angeles, California Office Submarket Trends

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Q2 2012 Los Angeles, California Office Submarket Trends

Los Angeles is one of the nation’s largest office markets, with estimates of office stock ranging from 190 to 250 million square feet depending on what types of buildings are included. It is also one of the most decentralized markets in the US, with less than 20% of its office stock in Downtown. Other main submarkets of Los Angeles include the Westside, the San Fernando Valley, and the Tri-Cities (Burbank/Glendale/Pasadena).

Westside

  • Based on their high average asking rents, the Westside submarkets, strung out along Wilshire Boulevard, are Los Angeles County’s premier office markets. They add to 52 million square feet of space according to Reis.
  • The 10.4-million-square-foot Century City submarket has a 12.8% second quarter 2012 vacancy rate, Reis reports. The average asking rent is $48.30 psf, the highest among 21 submarkets in Los Angeles County.
  • The vacancy rate fell 10 basis points during the quarter and is down 60 basis points from a year earlier. Both the average asking rent and the average effective rent were flat during the quarter. Rents are up 1.4% asking and 1.5% effective from a year earlier, however.
  • In the 11.6-million-square-foot West LA submarket, Reis reports a second quarter vacancy rate of 13.3%, and an average asking rent of $40.11 psf.
  • The vacancy rate rose 10 basis points during the quarter on 11,000 square feet of negative net absorption, but remains 30 basis points lower than a year earlier. The average asking rent and the average effective rent edged up 0.7% and 0.8%, respectively, the latter to $32.47 psf. The year-over-year gains are 0.8% and 1.2%, respectively.
  • According to Reis, the 7.7-million-square-foot Santa Monica submarket has a vacancy rate of 9.9%, second lowest among the submarkets, and an average asking rent of $46.18 psf. Santa Monica had held the top spot in asking rent for several years until recently.
  • Santa Monica’s vacancy rate fell 40 basis points in the second quarter on 31,000 square feet of positive net absorption, and it is down 160 basis points year-over-year. The average asking rent rose 0.7% and the average effective rent increased 0.8% during the quarter, the latter to $37.29 psf. The year-over-year increases are 0.8% and 1.1%, respectively.
  • The 7.4-million-square-foot Beverly Hills submarket has the lowest vacancy rate countywide at 8.0%, and an asking rent of $46.56 psf.
  • The vacancy rate decreased 70 basis points in the second quarter, and is down 60 from a year earlier. Rent gains have been strong here. In the second quarter the average asking rent increased 1.0% and the average effective rent rose 1.2% to $38.74 psf. The asking and effective averages are up 3.0% and 3.7% year-over-year.
  • The 14.8-million-square-foot Mid-Wilshire/Miracle Mile/Park Mile submarket has a vacancy rate of 14.5%, and an average asking rent of $27.97 psf, according to Reis.
  • The vacancy rate decreased 10 basis points during the quarter on 15,000 square feet of net absorption, and is down 10 basis points from a year earlier. The average asking and effective rent increased 0.4%, the latter to $22.84 psf. The year-over-year gains are 2.0% and 2.2%, asking and effective.
  • The 400,000-square-foot Red Pacific Design Center, the largest project under construction with a 2012 delivery date, is forecast to complete construction in December. Reis predicts a 15.4% vacancy rate here at year-end.
  • For 56 million square feet in Los Angeles West, Colliers reports a total vacancy rate of 15.4%, down 60 basis points from the prior quarter, and an average asking rent of $39.36 psf. Net absorption was 322,100 square feet in the second quarter after a flat first quarter.
  • The vacancy “is the lowest rate in West Los Angeles since the fourth quarter of 2009,” according to Colliers. “New leasing activity remained strong, but decreased slightly from 955,900 square feet in the first quarter to 916,000 square feet in the second quarter. Entertainment, media, and technology firms continue to show their interest in taking space in the West LA office market,” this source reports.
  • “The LA West office market continues to lead the rebound in greater Los Angeles,” according to Cushman & Wakefield. “Direct rental rates increased by $0.04 psf/month from the previous quarter to $3.34 psf/month. This brings asking rental rates back to 2010 levels, a direct result of the strong demand for space from entertainment, technology, and media companies.” “Overall occupancy gains totaled 229,192 square feet bolstered by large tenant move-ins from United Talent Agency and Playboy in Beverly Hills,” this source reports.

Downtown

  • For the 36-million-square-foot Downtown submarket, Reis reports a 15.5% vacancy rate and an average asking rent of $31.12 psf.
  • This has not been an active market. Second quarter vacancy and rents are essentially unchanged. Construction has likewise been quiet. There was 14,000 square feet of negative net absorption in the second quarter, actually something of an improvement of first’s negative 594,000 square feet.
  • The average effective rent, at $24.46 psf, is down one cent over the quarter. The asking and effective averages are up 0.7% and 0.9%, respectively, year-over-year.
  • “At mid-year 2012, total vacancy in the Central Los Angeles office market increased 30 basis points over last quarter to 18.4%. The Hollywood submarket was the only market to report a decrease in vacancy rates. Continued givebacks in the Mid Wilshire and Downtown Los Angeles submarkets drove total vacancy higher.” Direct weighted average asking rental rates decreased to $29.16 psf from $29.52 psf in the first quarter, Colliers reported.
  • “The CBD office market continued to soften through the first half of the year,” Cushman & Wakefield reported. “Vacancy rates inched up, leasing activity declined and occupancy losses rose again. Renewing tenants continued to give back at least 10% of space in an effort to be more efficient. Law firms, which make up 43% of the tenancy in the CBD, are still suffering insolvencies and in the second quarter, Dewey LeBoeuf dissolved, leaving a full floor vacant at 333 S. Grand Ave. Overall vacancy reached 20.2%.”

“Tri-Cities” (Glendale/Burbank/Pasadena)

  • The Tri-Cities submarkets, home to a concentration of entertainment industry businesses, are collectively home to 21.6 million square feet of general purpose, multi-tenant office space according to Reis data.
  • In the 6.5-million-square-foot Glendale submarket, Reis reports the vacancy rate at 19.1%, and the average asking rent at $30.11 psf.
  • The vacancy rate fell 120 basis points during the second quarter and is up 20 from a year earlier. Both the average asking rent and the average effective rent decreased 0.1% during the quarter, the latter to $24.09 psf. The year-over-year decrease was 0.9% by both measures.
  • The 338,000-square-foot second phase of the Grand Central Creative Campus is expected to complete construction in August. Reis predicts positive net absorption here although vacancy will tick upward 40 basis points by year end.
  • The 7.0-million-square-foot Burbank submarket has a second quarter vacancy rate of 13.9%, and an average asking rent of $33.43 psf according to Reis.
  • The vacancy rate fell 110 basis points from the prior quarter and both the average asking rent and the average effective rent fell 0.1%, the latter to $28.11 psf. The vacancy rate is down 130 basis points from one year earlier.
  • For the 8.2-million-square-foot Pasadena submarket, Reis reports a vacancy rate of 14.5%, and an average asking rent of $33.60 psf.
  • The vacancy rate was down 20 basis points from the prior quarter, as the average asking and the effective rent edged up 0.2% and 0.3%, respectively, the latter to $26.23 psf. The asking average is up 0.9% year-over-year, while the effective average is up 1.0%.
  • “Total vacancy in the Tri Cities office market decreased 30 basis points from 17.9% in the first quarter to 17.6% in the second quarter. Direct weighted average asking rental rates increased” to $31.92 psf, “the first increase since the second quarter of 2008. Leasing activity was driven by entertainment and media companies seeking reasonably priced and high quality office space,” according to Colliers.
  • “Learner’s Digest International signed a 29,245-square-foot lease at 450 N. Brand Blvd., adding to the 25 leases executed in Glendale. With vacancy rates forecasted to improve, Class A rental rates are likely to rise in the second half of the year,” according to Cushman & Wakefield

San Fernando Valley

  • The San Fernando Valley submarkets sum to 27.4 million square feet of multi-tenant space, according to the Reis database.
  • The 14.7-million-square-foot San Fernando Valley West submarket has a second quarter vacancy rate of 15.5%, and an average asking rent of $26.52 psf, Reis reports.
  • The vacancy rate fell 10 basis points in the second quarter, and is down 20 from a year earlier. The average asking rent and the effective rent were unchanged over the quarter, the latter at $20.69 psf. The year-over-year increases are just 0.4% asking and 0.6% effective.
  • In the 9.4-million-square-foot San Fernando Valley Central submarket, the vacancy rate is 12.5% and the average asking rent is $28.05 psf, according to Reis.
  • The vacancy rate decreased 40 basis points during the quarter and is down 50 from a year earlier. The asking and effective averages increased 0.1% during the quarter with the effective average at $22.14 psf. The gains from a year earlier are also small.
  • For the 3.3-million-square-foot San Fernando Valley East submarket, Reis reports a vacancy rate of 11.7%, and an average asking rent of $30.66 psf.
  • The vacancy rate increased 60 basis points during the second quarter, as asking and effective rents fell 0.6% and 0.7%, respectively. The latter is reported at $27.15 psf. Both rental measures are down slightly from a year earlier.
  • “Total vacancy in the San Fernando Valley & Ventura County office market decreased 30 basis points from 20.7% in the first quarter to 20.4%. The area office market saw +107,500 square feet of net absorption with much of the space gains for the quarter occurring in the Conejo Valley and Santa Clarita Valley,” according to Colliers.