Office Space Sets Record
Downtown Los Angeles, during the third quarter, experienced its largest growth ever of commercial space.
A record 2.8 million square feet of new office space was added to the inventory, making 23 million square feet of such space available, along with a vacancy factor of about 18%.
While the developers of that ample supply may be uneasy, potential tenants should continue to enjoy a competitive leasing market as broker activity intensifies.
“Never before in the history of downtown Los Angeles has such a large amount of office space hit the market in 90 days,” according to the compilations of Jeffrey T. Carey, vice president and district manager of Grubb & Ellis’ Los Angeles office.
“We are almost at the top of this particular development cycle, and construction will now begin taking a back seat to the marketing of this huge inventory,” he said.
Real estate authorities here have not become alarmed at the growing abundance of office space, citing the city’s growing stature as “the financial center of the West” as an offsetting principle in its ability to absorb space.
Nevertheless, the city’s increasing vacancy factor is now higher than the national average of 16%, according to late data from a Grubb & Ellis Co. survey, and Los Angeles has just edged Houston, dubbed as the “see-through city”--because you can see through so many empty buildings. However, Houston’s 17% vacancy mark has now been topped by San Antonio, with 32%, and San Jose, with 30%.
At the low end are San Francisco and Honolulu, with vacancy rates of only 8.2% and 8%, respectively.
The Los Angeles downtown office market vacancy factor represents nearly 4 million square feet, according to the survey. During the second quarter of this year, the existing base was just under 20 million square feet, with 2 million square feet vacant for a 10% vacancy factor; first quarter figures were 19.6-million square feet, 1.6-million square feet available and 8.22% vacancies.
Currently, the downtown market includes such major structures--with some already beginning to enjoy occupancy--as the initial phase of California Plaza, 942,000 square feet; Citicorp Plaza, 895,000 square feet; International Tower, 393,000; Figueroa Plaza, 303,000 square feet and the Wilshire-Bixel building, 280,000 square feet. In the wings, to be added to the market within two years, are 1.5 million square feet, Carey said.
The potential for absorption and demand for downtown space was also the subject of an address made to the Los Angeles Area Chamber of Commerce by Herve Kevenides, economist in the Los Angeles office of New York’s Chemical Bank. He believes that Los Angeles can absorb about 2 million square feet annually.
“Los Angeles, which recently emerged as California’s leading financial center, will experience a rapid acceleration in non-agricultural employment in general, and office-using occupation in particular. A process of consolidation around the central core will take place which will have a profound impact on office, residential and retail demand,” he said.
“Office absorption in the Los Angeles area as a whole will average about 7.5 million square feet a year as compared with less than 4.5 million square feet during the past four years. In the downtown area, demand will be in the 2-million-square-feet range.
“These high levels of demand in a well-diversified and improving regional economy positions Los Angeles as one of the potentially most attractive locations for both corporate expansion and relocation as well as a profitable market for real estate investors.”
Finally, the Grubb & Ellis report notes that more than 175 million square feet of office space is now under construction in the top 25 U .S. office markets--topping the more than 160 million square feet of space now occupied by towers in midtown-Manhattan.
