Office vacancy is dropping in L.A. as employment levels inch up.
Vacancy in the Los Angeles region decreased by 60 basis points during the second quarter of the year to 14.5 percent, down from 15.8 percent one year ago, according to a new second quarter report by commercial brokerage giant CBRE. Vacancy plummeted particularly dramatically in areas such as the Tri-Cities, where rates fell from 15.3 percent to 12 percent in just one year.
Experts attributed the drop to rising employment and the lack of new office development underway in the region.
The Los Angeles county unemployment rate was just 4.3 percent during the month of May, down from 6.8 percent one year ago. The education and healthcare sectors accounted for nearly 37 percent of that growth.
Meanwhile, supply of new office product remains tight. Just over 2.3 million square feet is currently under construction in the greater Los Angeles area, a figure that has remained unchanged since last quarter.
Space constraints also drove rents up in the second quarter. The average lease rate in the region increased from $2.91 per square foot in the first quarter to $2.93 per square foot.
Petra Durnin, CBRE’s director of research, pointed to Hollywood as a driver of rent growth. Unlike the larger Los Angeles, market, it is an area which has seen new construction of projects like Hudson Pacific’s Icon, which was entirely pre-leased by Netflix.
“Hollywood asking rents climbed 21 percent from a year ago and joined the upper echelon of submarkets that command rents above the $4.00 per square foot mark,” Durnin said. “This growth can be attributed to the large amount of high-quality, new development that is being added to this submarket.”
Sales of office properties are also strong, the report shows. The quarter’s most notable transactions include the more than $300 million sale of 400 South Hope Street by CBRE Global Investors, which The Real Deal first reported.