L.A. County’s Office Market Gets Tighter
Office rents in Los Angeles County continued to ratchet up in the third quarter, as continued business expansion pushed vacancy rates down to near record lows, according to data released Tuesday.
The biggest price hikes were on the Westside, although some landlords in other tight markets such as Burbank and Sherman Oaks were asking for rents near the level of the peak years of the dot-com boom.
“For the most part, we are at or near record-low vacancies for Southern California,” said Joe Vargas at commercial real estate brokerage Cushman & Wakefield, which compiled the data. “It’s clearly a landlords’ market.”
Average asking monthly rents rose 7% from the third quarter of 2005 to $2.25 a square foot, while the vacancy rate slipped to 10.7% from 13.1%, the brokerage said.
Markets are tightening across the county as many white-collar businesses staff up, Vargas said. Increased occupancy of office space can be attributed to a healthy local economy and slow “organic growth” of existing companies.
That means empty space is disappearing gradually and small companies will still find ample choices, though it’s less of a bargain to rent than it was last year, broker Jerry Porter of Cresa Partners said. Large tenants, however, are running out of options and “have much less leverage than they did a few years ago,” he said.
Still, “it’s hardly a sizzling market” with vacancy still above 10%, economist Christopher Thornberg of Beacon Economics said. “There isn’t anything particularly dramatic going on.”
Thornberg described the residential real estate market as “a slow-moving train wreck.” He expects the market to bottom out in early 2007. “We don’t know how bad it’s going to be,” he said, but a drop in home values could affect the office market by forcing homeowners to cut spending, slowing the economy and business expansion.
In Santa Monica, rents jumped to a county high of $3.73 a square foot per month last quarter from $3.26 a year ago, as the vacancy rate fell one percentage point to 5.4%.
Rents hit $2.78 in the Burbank media district last quarter and $2.46 in Sherman Oaks.