Downtown Los Angeles has recently seen rents and vacancy rates surge at the same time, a paradox rarely seen in office markets.
Optimism about coming demand is not enough to explain why.
The DTLA market is dominated by only a handful of landlords, which has allowed them to keep rents high amid high vacancy rates, according to GlobeSt.com.
Landlords in markets like New York with a larger pool of owners typically lower rents quickly in response to rising vacancy rates, to snag tenants from competitors. But in Downtown, landlords like Brookfield, Kilroy, and Douglas Emmett own large chunks of the market. That means they “can kind of ignore those swings,” NAI Capital Executive Managing Director Joe Faulkner told GlobeSt.com.
That’s great for landlords, but not so much for renters.
Data from earlier this year showed that in some cases rents actually went up along with vacancy rates. Rents increased to $3.29 per square foot in the fourth quarter of last year — up 9.3 percent year-over-year — but the vacancy rate at the end of the year was 20.6 percent, second only to Culver City’s 27.7 percent. At the time there was 1.7 million square feet of office space under construction and 80 percent was not leased, according to Colliers. [GlobeSt.com] – Dennis Lynch