Single-Digit L. A. Office Vacancy Rate Predicted
Year-end measurements of real estate activity indicate that construction has peaked in downtown Los Angeles for this decade.
From 1980 to 1985, more than 10 million square feet of space was built, while 1986 produced a comparatively small and cautiously built 1.2 million square feet, culminating in an office vacancy factor of just over 15%.
This year, from current projects under way, only 864,000 square feet of new space will be added to the downtown inventory.
Prospects are for single-digit levels of occupancy because of a combination of continuing demand for space, reduced construction and the downtown area’s exemption from the tentacles of the recently enacted development-density-limiting Prop. U.
An annual forecast and status report to be made Tuesday by the Grubb & Ellis Co. predicts that the vacancy rate for this year might dip even to 8%, and notes that a coincidental 1.2 million square feet was absorbed in downtown structures last year, showing a matching schedule of construction and occupation.
The firm’s review reiterates the historic change which has taken place, with downtown Los Angeles displacing San Francisco as West Coast headquarters for global business and financial service firms.
Along with a dramatic reduction in vacancy rates, Grubb & Ellis executives anticipate stable lease rates and terms and growth in absorption rates, and their outlook for the entire Los Angeles office market is highly optimistic.
In its forecast, the firm describes the Los Angeles basin as the “the steam engine” pacing California’s economy and includes within its boundaries, Los Angeles County, the Inland Empire West and Ventura County.
“The Los Angeles Basin is home to 9 million people, 34% of the state’s population. By 1991, it will have another 500,000, the largest employment base in the United States.
“Over 1 million new jobs will be added to its 4.3-million base during the next 14 years, making its actual growth higher than all other areas in the country. Today, it is second only to New York.
“The basin has one-third of the state’s employment and 40% of its aerospace jobs. The manufacturing sector accounts for 23% of the work force, and business services, such as finance, insurance and real estate, make up another 32%.”
The report cites downtown Los Angeles and the mid-Wilshire corridor as the heart of the basin’s urban core, while Pasadena, Glendale and the San Gabriel Valley are described as prime examples of suburban office markets.
Mid-Wilshire is beginning to stabilize “and has become an alternative location for smaller, price-sensitive and service oriented firms engaged in accounting, law, advertising and insurance.
“It offers lower lease rates than the downtown and Westside office markets and it also has better parking and less traffic congestion,” the report says.
Pasadena’s position as a major business and financial center has been firmly established and reinforced by the growth of the city as as headquarters location for regional firms, the report notes, and represents a submarket offering an alternative for firms that do not necessarily need to be in downtown Los Angeles.
Glendale office construction, with almost 2 million square feet, has peaked as a major speculative office market, a development cycle that began in 1979.
The San Gabriel Valley is second to downtown Los Angeles in activity levels, having absorbed an unprecedented 300,000 square feet last year. Most of this activity is adjacent to the eastern boundary of the San Gabriel River (605) Freeway.
All things considered, the 1987 market will do very well, with downtown Los Angeles and the San Gabriel Valley leading the way, the forecast concludes.
