L.A. Office Vacancies Lowest in 2 Years
The vacancy rate in downtown Los Angeles offices is at its lowest level in two years and is expected to remain low, despite the fact that the market is about to be flooded with an unprecedented amount of new space, according to a report by Grubb & Ellis Commercial Real Estate Services.
It attributed the low vacancy rates to a dramatic surge in pre-leasing activity during the first half of this year.
The absorption level, or net total of square footage occupied during the quarter ending June 30, soared to 350,031 square feet, according to the report, which notes that only 21,960 square feet was absorbed during the first quarter.
Much of the space leased during the second quarter is in buildings still under construction. “Downtown office buildings are like cars,” said Raymond M. Lepone, a senior marketing consultant with Grubb & Ellis. “Everyone wants to drive the newest and fanciest car in the neighborhood.”
7 High-Rises
Seven high-rises, including the largest ever built in the city, are nearing completion in the Central Business District. Together, the new high-rises will add about 6.5 million square feet to the existing base downtown of 25.5 million square feet, the report states, and another 16.5 million square feet in 11 projects have been proposed.
“When the first set of (seven) buildings is finished during the next two years, the downtown region will have completed one of the largest single cycles of development in its history,” said Lepone, “but during the next 10 years, even this boom will be tripled.”
Office vacancies for the first six months in the downtown area stood at 12.6%, which is one of the lowest vacancy rates in the nation, the report indicates. At the end of last year, the downtown rate was 14.2%, but one year ago, it was 12.3%.
Three Major Projects
The study shows that pre-leasing activity has been concentrated in three projects: First Interstate Tower at Library Square, which is 70% pre-leased; the Wilshire at Figueroa Building, 60% pre-leased, and Grand Place, 50% pre-leased.
“Average, healthy pre-leasing would be about 20% to 25%,” said Lepone, “so this cycle . . . has been phenomenal.”
The Mid-Wilshire region is also doing well, according to the report, which shows vacancies there plummeting at the end of the first half of the year to 12.2%. That compares with a rate of 17.9% recorded one year ago.
Three Major Signings
The drop is described as “the first major reduction in vacancies since 1985” and is attributed to three major lease signings, including two by the State of California. No new construction was reported in this area.
Other geographical areas mentioned in the report are downtown Pasadena, which posted a vacancy rate of 15.5%, up from the 9.8% recorded a year ago; Glendale, which had a vacancy rate of 14.2%, a decline from the 21.1% posted for the same period last year, and the San Gabriel Valley, which finished the first half of this year with a vacancy rate of 26.4%, the highest of all Los Angeles markets.
The report notes, however, that the expansion rate there is nearly double that of Southern California, and absorption levels there are also the highest of any market surveyed.
