Office Vacancy Falls to 14% in L.A. County

Los Angeles County’s office market continued to tilt in favor of landlords last quarter, as businesses expanded and pushed the vacancy rate down 3 percentage points, to 14.1%, from the same period a year earlier.

Nearly 1.2 million square feet of office space were taken off the market in the quarter that ended March 31, according to research by real estate brokerage Cushman & Wakefield. About 4.3 million square feet have been absorbed in the last year.

More than half of the leasing in the first quarter took place on the Westside, as that district continued to recover from the dot-com implosion in the first part of the decade. Vacancy rates there fell to 11.8% from 16.8% a year earlier.

“There’s a huge absorption trend in that market,” said Joe Vargas, senior managing director of Cushman & Wakefield. The surging entertainment industry is responsible for a large portion of the growth, he added.

So far, the tighter market has had little effect on rents. Westside landlords asked for $2.62 per square foot per month, an increase of 4 cents from the year before. Countywide, rents stayed flat at an average of $2.05.

Vargas said that landlords were cutting back on such concessions as free rent and discounted parking, however, and that rent increases would soon follow at the rate of 7% a year for the next three years.

“We have had sustained growth over the last two years,” he said. “I can’t see any slowdown in sight.”

Vacancy in downtown Los Angeles, the second-largest market after the Westside, fell to 16.3% from 18.3% a year earlier. Rents were flat at $2.05 a square foot.

The San Fernando Valley is improving too: Vacancy fell to 9.5% from 12.5% in the last year.

Office landlord Michael Adler has raised his asking price to $2.05 a square foot from $1.90 for his properties in the Valley. He sees much of the growth coming from existing tenants.

“Companies are finally hiring,” said Adler, president of Woodland Hills-based Adler Realty Investments Inc. “Everyone was reluctant to expand during the last recession, and now they have used up the space they had from their last expansion” period.

Vacancy rates in Burbank, Glendale and Pasadena slipped to 11% from 15%, and empty space in the Wilshire Center was reduced to 11.7% from 15.6%.

“There is a lot of momentum in the market,” Vargas said.

The worst market was near Los Angeles International Airport, where vacancy ticked up almost 2 percentage points to 31.6%.