Prospective office renters in Los Angeles County are likely to have to dig deeper into their wallets as rents rise and empty space continues to fill up.
Market improvements for landlords that emerged in the second half of 2014 continued in the first quarter. Businesses expanded faster than new offices were built, increasing the competition to lock up space.
With the regional economy on track, the office market should continue to tighten and push up rents, said Petra Durnin, managing director of research for real estate brokerage Cushman & Wakefield.
"Looking forward, 2015 is going to be a very healthy year," Durnin said.
Overall Los Angeles County vacancy fell to 16% in the first quarter from 18% in the same period a year earlier, according to the brokerage. Landlords raised their average asking rents 6%, to $2.73 per square foot a month.
But the county office market has many submarkets, among which demand and rent vary widely. The popular Westside, for example, has been improving for the last few years even as other submarkets, including downtown Los Angeles, were stagnant.
The wealth for landlords finally spread wider in the first quarter, Durnin said.
"We have a dozen submarkets below 10% vacancy now," she said. "That indicates the market strength we have been feeling is a reality."
Vacancy below 10% is considered a tight market, one that favors landlords in rent negotiations with tenants. Developers are also inclined to build new offices when vacancy falls below 10%, but so far there is little construction compared with other periods of prosperity in recent history.
No large office buildings came online in the first quarter, Durnin said, and only 1.5 million square feet of offices are under construction — a fraction of the existing inventory of 195.8 million square feet in L.A. County.
The Westside remains strong, especially tech-heavy Santa Monica and nameplate Beverly Hills, where asking rents jumped 15%.
Playa Vista, the former headquarters of Howard Hughes' aviation empire near Marina del Rey, continued its boom as an emerging center for tech and media businesses with vacancy falling 13 percentage points to 21%.
A surprise performer was Glendale, Durnin said, where vacancy fell to 15.1% — a 6.7-percentage-point drop. "That's huge for Glendale," she said.
Rents are lower in Glendale than in competing markets such as Hollywood, she said. One of the largest Glendale leases in the first quarter was a 146,000-square-foot commitment by directory service Yellow Pages Inc.
Orange County, which recovered sooner than Los Angeles did, saw a continued drop in vacancy to 13.1%. Asking rents jumped from $1.90 per square foot to $2.13.
"Like last year, they are having very robust leasing activity," Durnin said.