Southern California's office market has improved ever so slightly — once again for landlords.
In the just-finished first quarter of 2014, the overall vacancy rate fell less than a percentage point and monthly rents ticked up a nickel per square foot.
The slight upward shift in occupancy was typical of the last several quarters. The region's office rental market stabilized after the recession, but has not picked up steam the way it did during previous economic recoveries.
Nevertheless, vacancy is reaching its lowest level since 2008, when the Great Recession hit and prompted a downward trend in office use that finally is turning around, albeit at a glacial pace.
"It's slow growth, and that's the new normal," said Petra Durnin, a managing director at real estate brokerage Cushman & Wakefield.
The regional office vacancy rate for Los Angeles, Orange, Riverside and San Bernardino counties was 17.3% at the end of the first quarter, the brokerage said, down from 17.9% a year earlier. Landlords asked for average monthly rents of $2.36 per square foot, an increase of 5 cents from the same period last year.
Leasing has been "robust," Durnin said, but some big firms are shrinking in Los Angeles County. "Downsizing has slowed among law firms, but the financial sector is still contracting."
Los Angeles had significant occupancy gains in the first quarter but is behind other markets, including New York, in its economic recovery, she said. "We don't have the same amount of construction and job growth that other markets have."
Orange County took a hit in the first quarter as Fisker Automotive and AT&T each vacated a building, increasing overall vacancy to 15.4%.
Despite the weak leasing environment of the first quarter, there are aspects of the Orange County market that are considered positive for the road ahead, according to real estate brokerage Jones Lang LaSalle.
"After months of speculation, it now seems clear that the housing market has turned the corner which is fueling the local mortgage and financial services industries," the brokerage said in a report.
The Inland Empire's overall vacancy declined 1.5 percentage points to 19%, the largest first-quarter drop in Southern California, due to large leases signed by tenants in the healthcare industry.
Slow recovery is expected to remain the trend for the rest of 2014, Durnin said.
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