Best Times for Office Leases: Now

The high times and the perks for tenants in the nation’s office leasing market are continuing at an aggressive pace.

Office space seekers have had it good for some time, here and elsewhere in the nation’s major cities, as owners compete for occupants during a period when the national office vacancy rate is averaging about 16%. For the Los Angeles area, the vacancy rate is estimated at 13%.

The perks generally include free rent for a year or longer, better than standard tenant improvements and reimbursement for move-in costs. On a longtime basis, property owners offer equity positions to would-be tenants.

A resident authority on office space believes that while the Los Angeles basin market is still very active, it has to bottom out. He is Howard Sadowsky, senior vice president and manager of the Los Angeles office of Julien J. Studley Inc., a national realty leasing, sales and consulting firm.


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“We’re encouraging tenants to act now, rather than wait until 6just prior to their leases’ expiration date. While excellent deals are being offered in today’s market, the window of opportunity will not remain open for too long,” he said.

In this period of aggressive leasing, Los Angeles office tenants are taking space at a greater clip--13% higher--than a year ago. During March and April, the period covered by the latest Studley Report, 1.4 million square feet was leased in Los Angeles area offices, about the same rate as last year, but for the first four months this year, about 3.3 million square feet of space was leased--400,000 square feet more than the first four months of 1984.

At that pace, Sadowsky believes, 10 million square feet will be leased by the end of the year, compared to a little under 9 million square feet taken during 1984.


The huge, 23 million square feet of office space in the making in the Los Angeles basin market became a new high at the end of April while demand for space was up by the aforementioned 13% over last year.

Sadowsky attributes the burst of construction here over the last two years to the relatively limited supply of quality office space available in 1982-83. After that came the rush to new construction.

Ready supply is approaching 8.5 million square feet and 4.5 million square feet is available immediately. Asking rental prices in the newly-completed offices are from $24 to $30 per square foot per year. However, the competitiveness of the tenants’ market is reducing the effective rate to an acceptable level.

Rather than facing an alarming abundance of office space, Sadowsky points out that Los Angeles has a most unusual situation in its absorption rate.


Space is being leased not only from firms from other sections of the metropolitan area and other sectors of the nation, but from many foreign countries, particularly those in the Far East and the Pacific Rim.

“The Asian influx is not a new phenomenon but it has increased drastically over the last few years and it seems that it will continue,” he said.

“Downtown Los Angeles has become the financial capital of the West and the principal players in the financial community will have to establish Los Angeles bases or have to enlarge their position in Los Angeles to remain competitive.

“All the big banks are here and have been for quite awhile. But with the advent of interstate banking and its position of becoming a truly international city, Los Angeles is experiencing a tremendous growth of financial institutions both here and abroad.”


Steve Walbridge, of the firm’s downtown leasing office, added that Citicorp, Chase Manhattan and Manufacturers Hanover Trust are among the big space-takers and a number of large law firms too are among the major tenants moving in.

In contrast, there are such high--20%--office vacancy cities as Denver, New Orleans, Houston, Fort Worth and, closer to home, San Diego.

According to the Studley Report for March and April, the most active local absorption markets were Westwood/West Los Angeles, 633,000 square feet; Mid-Wilshire, 357,000 square feet and Santa Monica, 209,000 square feet.

Throughout the Los Angeles area, the average rental for all space leased as of April 30, was $2.13 per square foot per month; a year ago at the same time it was $2.06. Space in new structures averaged $2.27 and $1.81 in existing office.


Nationwide, total space--new and old--leased was headed by metropolitan New York, 8,435,595 square feet; Manhattan alone with 4,829,017 was second. Washington was third with 5,354,752; Houston was fourth with 3,974,356, Los Angeles with 3,395,237, was fifth and Chicago with 2,065,580 was sixth.

In new space only, Washington topped all cities, followed by metropolitan New York, Manhattan, Houston, Los Angeles and Chicago. Sadowsky, talking like a happy baseball manager, adds, “We have good depth here.”