L.A.’s Office Vacancy Rate Slips in Quarter
The Los Angeles County commercial office rental market continues to show signs of improvement, and sales of buildings in the county are fetching top prices.
The county’s office vacancy rate in the third quarter was 17.4%, compared with 17.8% a year earlier. It was the third consecutive quarter of improved occupancy, according to a report Tuesday from Cushman & Wakefield, one of the nation’s largest commercial brokerages.
The average monthly rent dropped slightly, to $2.06 per square foot from $2.13 a year earlier. Analysts said that reflected more of a price correction than a softening market.
“The Southern California office market is definitely moving in the right direction,” said Joe Vargas, senior managing director of Cushman & Wakefield. “Businesses are beginning to move from the sidelines back into the game as they become more confident that the economy is improving.”
Large office buildings have been selling at a steady clip as investors who are wary of the stock market take advantage of low interest rates. Among the big properties traded in the last quarter were 801 S. Figueroa in Los Angeles, which sold for $105 million to Mani Bros., and Wilshire Bundy Plaza in Brentwood, which Namco Capital Group bought for $75 million.
The sale of another downtown skyscraper will close next month, real estate sources said. Chicago-based Transwestern Commercial Services will buy the 62-story Aon Tower at 707 Wilshire Blvd. from Wells Fargo & Co. for $121.5 million, according to people who know about the deal.
Wells Fargo’s broker, Kevin Dretzka of Eastdil Realty, confirmed Tuesday that sale negotiations are taking place but declined to elaborate. The 1-million-square-foot building is 82% leased, according to real estate data provider CoStar Group.
Demand among investors for premium office properties is so high that the only obstacle to escalating sales activity for the remainder of the year is a limited supply of properties for sale, said broker Martin Morgenstern, also of Cushman & Wakefield.
“With debt at its lowest rate in 40 years, and alternative investment options considered too risky and too low-yielding, buyers are focused on higher-yielding real estate,” he said.
When it came to leasing space in the third quarter, several markets demonstrated marked improvement, including the Burbank Media District, perhaps the tightest market in the county. Vacant space fell to 4.7% of total space from 20.5% a year ago, while rent rose to $2.76 from $2.49. Among the recent major leases there was a 456,000-square-foot agreement signed last month by Warner Bros.
Leasing activity continued to thrive in the 26.5-million-square-foot San Fernando Valley office market. Vacancy rates declined for the third straight quarter, falling to 13.6% from 16.3% at the beginning of the year and from 15.6% a year ago. Rent fell to $2 from $2.10 a year ago.
The vacancy rate in downtown Los Angeles was up slightly to 19.6%, from 18.7% a year ago, but average monthly rents rose to $2.06 from $1.99.
“My sense is that we have hit the bottom and that things are starting to improve,” said downtown landlord Jim Thomas of Thomas Properties, who bought landmark Arco Plaza in January.
“We’re seeing tenants who have leases expiring in as much as three to four years out in the market” looking for space, he said. “Many of them are concerned that rates are going to increase.”
Orange County, meanwhile, had a 17.2% vacancy rate and average rent of $1.93 in the third quarter, compared with 17.8% and $2.03 a year ago.
