Premium new office space coming onto the rental market is increasing average rents in Los Angeles County — even as it has driven up the vacancy rate.
Typically, a supply increase of available offices puts downward pressure on rents. But the recently completed Wilshire Grand in downtown Los Angeles and the Pen Factory in Santa Monica are lifting average rents sought by landlords, according to market observers.
"What's coming online is premium space commanding premium dollars," said Eric Kenas, the local head of research for real estate brokerage Cushman & Wakefield.
Rents at the Pen Factory, a 1950s Papermate pen manufacturing plant that was turned into offices this year, are close to $5 per square foot per month.
The owners of Wilshire Grand, a recently completed hotel and office skyscraper, are asking about $4.25 a foot.
The overall average rent sought by Los Angeles County landlords in the third quarter ended Sept. 30 was $3.32 per square foot per month, according to CBRE Group Inc., up from $3.08 in the same period a year ago and $3.19 in the previous quarter.
Developers emboldened by the region's sustained economic upturn have completed about 1.7 million square feet of new office space this year, the Los Angeles-based brokerage said.
That pushed the overall third-quarter vacancy rate in Los Angeles County to 14.4%, up from 13.3% in the same period a year earlier and 13.7% in the previous quarter.
Santa Monica, where landlords are asking for more than $6 a foot, commands the peak price in the county. Downtown L.A. is a comparative bargain at $3.47 a foot.
The local office market will continue to strengthen for the next year to 18 months presuming the economy remains strong, said Petra Durnin, CBRE's director of research and analysis.
"Even though we have reached full employment and leasing activity is not as robust as it was at its height in 2014," Durnin said, "the market is not softening."