Glut May Be Less Than Feared

The market for office space in downtown Los Angeles will be the most competitive ever in 1985, but it might not face the extreme overbuilding that some have feared.

Elsewhere in the Los Angeles basin, the office-space market is expected to rebound somewhat in the mid-Wilshire area; continue to improve in Pasadena, Glendale and the San Gabriel Valley, and be strong in most parts of the San Fernando Valley, according to a survey by Grubb & Ellis Co., a Los Angeles-based commercial brokerage firm. Intensive development and rising rental rates are boosting vacancy rates in West Los Angeles, the survey found.

In downtown, “what we see is a questionable market,” said Raymond M. Lepone, Grubb & Ellis’ senior marketing consultant.

A total of 3.3 million square feet will hit the market in 1985, with even more scheduled for 1986 and beyond, he said. Vacancy rates will rise to between 15% and 18% through 1986 from the current 8%, and the downtown will become a tenants’ market, at least in the near future, he said.

But because of doubts over funding for the Metro Rail project and fears that the city might therefore slow the building pace, some projected buildings may not be constructed on schedule, Lepone said. If that happens, downtown might not become as overbuilt as many brokers and developers had thought, he said.

The mid-Wilshire area is bouncing back after losing several major tenants but could run into difficulties in the coming years, Lepone said.

“Over the next five years, most if not all of the traditional companies will relocate,” Lepone said. For example, insurance companies that traditionally have maintained their headquarters in the mid-Wilshire area are scouting around Pasadena, Glendale, the San Gabriel Valley and other areas.

“We’ve got to believe that vacancy rates will exceed 20%” compared to the current 14%, Lepone said. “They’re going to see some tough times ahead.”

In general, tenant interest is increasing in Pasadena, Glendale and the San Gabriel Valley, but the areas must be careful not to become overbuilt, Lepone said.

The San Fernando Valley is a “good, strong office market,” with the exception of Westlake Village and Thousand Oaks, where there is some overbuilding, said Keith Karpe of Grubb & Ellis.

West Los Angeles is experiencing an “explosive” cycle of speculative high-rise development, said Robert Bennett, sales manager in Grubb & Ellis’ West Los Angeles office.

The heavy development coupled with rapidly rising rental rates pushed the area’s vacancy rate to nearly 14.5% from about 12% at the end of 1983. The vacancy rate could rise to more than 20% by the end of this year, Bennett said.