Greater LA office market “still in growth mode”: report
UPDATED, 10:10 a.m., April 20: Despite negative absorption in the first quarter, the office market in the Greater Los Angeles area is slated for continued growth in 2017, according to a new report from CBRE.
Thanks to strong demand, and strong job growth, CBRE predicts rents will rise 8.2 percent in 2017 and vacancies will fall 0.3 percent.
The office market saw a “double whammy” of factors that contributed to a negative absorption in the first three months of 2017 — two major move-outs and 742,053 square feet of new supply — but rent continued to grow from $2.94 per square foot per month in the final quarter of 2016 to $3.04 in Q1 2017, according to CBRE’s analysis.
“There’s a lot of talk about slow down, but when you look at our data, there’s no indication of that,” said Petra Durnin, head of research and analysis for CBRE Southern California. “We have room for vacancy to come down and for rent to [further] appreciate.”
Rents have gone up across submarkets, with West L.A. growing nearly 5 percent year-over-year to $4.74 per square foot a month and DTLA up 6 percent to $3.39 a square foot. CBRE predicts rents will rise 8.2 percent in 2017 and vacancies will fall 0.3 percent. But as landlords pushed rents up, they’ve also increased concessions significantly, the report said.
Meanwhile, overall vacancy increased slightly during the first quarter of 2017 to 14.3 percent, but that number still reflects a dip since this time last year. The negative absorption can be attributed Sony moving to a building it purchased and IPG downsizing in West L.A., CBRE said.
Demand is anticipated to remain high, according to Durnin, despite diminishing land for new construction. There are 1.8 million square feet of office space currently under construction, according to the report — the lowest since the first quarter of 2014.
“As space tightens, it’ll be more difficult for tenants to find choices for available space,” Durnin said.
But thanks to strong job growth, it’ll still be sunny days ahead, she added.
Greater L.A. added more jobs in 2016 than San Francisco and San Jose combined, the report said. CBRE predicts that office-using employment will grow another 1.4 percent in L.A. County over the next four quarters.
A previous version of this story said there was a negative absorption of 742,053 square feet, when in fact, the square footage applies to the new supply that hit the market.