Southern California office rental market improves slightly

The L.A. skyline appears in the background of this file photo shot from Vista Hermosa Park in Echo Park.
The L.A. skyline appears in the background of this file photo shot from Vista Hermosa Park in Echo Park.
(Irfan Khan / Los Angeles Times)

Southern California’s office market has moved ever so slightly in favor of landlords. In the just-finished third quarter of 2013, the overall vacancy rate fell a tiny bit, and average monthly rents ticked up a few cents.

The slight upward shift was typical of the last several quarters. The region’s office rental market stabilized after the recession, but has not picked up steam the way it did during previous economic recoveries.

“This is uncharted territory,” said research analyst Petra Durnin of property brokerage Cushman & Wakefield. “This is slow growth. We have not seen anything like this.”

Some office markets are doing better than others as certain industries step on the gas and expand, while many others hold back. Orange County, for instance, is “recovering quite nicely,” Durnin said, thanks to the revival of home loan businesses.


“The exact industry that took Orange County down is growing again — mortgage companies,” she said.

Office vacancy in Los Angeles, Orange, Riverside and San Bernardino counties was 17.5% at the end of the third quarter, Cushman & Wakefield said, down from 18.4% a year earlier. Landlords asked for average monthly rents of $2.33 per square foot, an increase of 5 cents from the same period last year.

In Los Angeles, the ever-popular Westside continues to outshine other neighborhoods as technology and entertainment businesses based there grow and rent more space.

One big reason this office market recovery is much slower than others is that many firms are packing more workers into less space.

The ho-hum recovery has hit downtown Los Angeles especially hard, said broker David Kutzer of Newmark Grubb Knight Frank. Law firms, banks and other corporate businesses have been cutting back on private offices and workers’ cube space. Open floor plans are becoming the norm.

“There is far less ‘me’ space and more ‘we’ space,” Kutzer said.

Tenants aren’t leaving downtown, but their space cutbacks and occasional layoffs are keeping the market soft, he said.

Vacancy in the central business district is about 20%, according to Cushman & Wakefield, double what is considered healthy among real estate professionals. Although the absorption of empty space on the Westside and a few other markets offers landlords a glimmer of hope, the overall character of the Los Angeles-area market isn’t likely to change soon, Kutzer said.


“I don’t see a significant demand for additional office space and increasing rents in coming quarters,” he said. “We’re not turning the corner to what we consider really healthy markets, and we’re nowhere near the low vacancy that will result in new construction of office space.”

Twitter: @rogervincent