L.A.’s Office Market Continues to Soften

The Los Angeles area office market continued to show signs of softening during the second quarter as vacancy rates rose and rents flattened out and even dipped in a few once red-hot markets, according to several recent real estate reports.

Much of the weakness was centered on the Westside, where the dot-com bust and several newly constructed buildings resulted in a sharp increase in the amount of available space in recent months. Meanwhile, downtown Los Angeles stood out with lower vacancy and higher leasing rates.

“It looks like, for the immediate future, that the market is going to be relatively flat,” said Howard Sadowsky, a regional manager with real estate brokerage Julien J. Studley Inc. “The deals are going to take longer and there is more concern. People are just not as confident about business and the economy, even when their business is good.”

Greater Los Angeles finished the second quarter with a vacancy rate of 14.5%, up from 13.6% for the first quarter, according to Cushman & Wakefield Inc. Last year, the second quarter vacancy rate was 12.7%.

After rising significantly in recent years, rents for the second quarter remained virtually unchanged, according to a report by real estate services firm Insignia/ESG. The average asking monthly rent rose to $2.30 a square foot, up from $2.28 in the previous three-month period. Last year, the average asking rent in the second quarter was $2.13.

Santa Monica was one of the few markets where rents fell on a quarter-to-quarter basis as landlords struggled to find takers for hundreds of thousands of square feet of space that has been given up by Internet and high-technology tenants. The asking rent for the second quarter there dropped to $3.43 a square foot from $3.46 in the previous quarter, according to Insignia/ESG.

The lack of any substantial increases in rents will reduce pressure on tenants to relocate from the Westside in search of cheaper space, said Insignia/ESG research executive Kevin Morrow.

“They can go back to the prime places at a more reasonable rate,” Morrow said.

In downtown Los Angeles, the second quarter ended with a vacancy rate of 22.6%, about even with first-quarter results but below the 25.1% rate for the same period last year, according to Insignia/ESG. Average asking monthly rents climbed to $1.88 per square foot in the quarter, up from $1.82 in the first quarter. The average asking rent for the second quarter of 2000 was $1.63.

Compared with the other office markets in Los Angeles, “downtown has been the least affected by the slowdown in the economy,” Sadowsky said.