L.A. County Office Market Getting Tighter
Los Angeles County’s office market continued to tighten in the second quarter as business expansions pushed up rents and lowered vacancy rates, particularly on the Westside, according to data released Thursday.
The steadily tightening market is putting growing financial pressure on firms planning to expand, real estate industry observers said. Some markets, such as Santa Monica and Pasadena, are running out of space or landlords are demanding rents reminiscent of the peak years of the dot-com boom.
“The little guy will find plenty of opportunities” to rent offices, said broker Joe Vargas at commercial real estate brokerage Cushman & Wakefield, which compiled the data. “But it’s not a bargain anymore.”
Average asking monthly rents rose 7% from the second quarter of 2005 to $2.21 a square foot, while the vacancy rate dipped to 11% from 13.4%, the brokerage said.
Office markets across the country are tightening, with Los Angeles considered to be one of the nation’s most desirable areas for investors in office properties.
The market’s tilt in favor of landlords “reflects ongoing strength in the local economy,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.
Among those expanding are professional firms selling accounting, law and advertising services, Kyser said. “These are classic office users.”
However, Vargas said that in most local real estate markets, the filling up of vacant office space was still slow and gradual. “We’re just eating away at current inventory,” he said.
Little office construction is planned or underway, so that trend will probably continue this year, Vargas said. Developers typically won’t be prompted to construct new office buildings until vacancy rates fall below 10%.
The vacancy rate fell below 8% on the Westside from almost 11% a year ago. Santa Monica, Beverly Hills and West Hollywood led the way with vacancy falling to around 5%. The biggest decline was in Beverly Hills, where the vacancy rate dropped six percentage points to 5.5%.
The most expensive space was in Santa Monica, where the average asking monthly rent jumped to $3.60 a square foot from $2.95. The cheapest space was not far away, in the Los Angeles International Airport area, where rent stayed flat at $1.45 a square foot.
Such market-to-market disparities have caused business managers to take more time to evaluate their options, said broker Jonathan Larsen of Transwestern Commercial Services, which represents tenants.
“There is more patience now and that delays everything,” he said. “Several transactions now won’t be done until after Labor Day.”