The Los Angeles County office market continued to improve in the first quarter despite economic weakness abroad, with growth in co-working and technology firms helping to fill up offices and lift rents.
Among the hottest neighborhoods was downtown L.A., an area that is seeing growth not only in tech and creative firms but also its traditional law and insurance industries.
International law firm Orrick, Herrington & Sutcliffe, for example, renewed a lease at the 777 Tower on Figueroa Street for 65,633 square feet, while law firm McGuireWoods inked a deal for 27,000 square feet at the Wells Fargo Center on Grand Avenue. Co-working firm WeWork also moved into 91,000 square feet at the Gas Company Tower.
The activity helped lift monthly lease rates in the quarter ended March 31.
Asking rents downtown rose 3.3% from the previous three months to $3.20 a square foot, according CBRE Group Inc. Vacancy, meanwhile, fell from 17.6% to 17.2%. Countywide, asking rents rose 4 cents to $3 a square foot, while vacancy declined from 15% to 14.8%.
For example, a joint venture between real estate investor Douglas Emmett and the Qatar Investment Authority purchased four Westwood office properties, including Westwood Center, for $1.34 billion.
“I think everybody was concerned that first quarter [would be] quiet,” said Petra Durnin, CBRE’s research director for Southern California. “But it wasn’t.”
What effect turmoil overseas will have moving forward is less clear.
John Tronson, a principal with commercial real estate brokerage Avison Young, said sharp drops in the U.S. stock market during the quarter prior to the recent recovery caused a couple of real estate investment trusts to rethink plans to build large Hollywood office projects without first having tenants lined up.
“Some developers are in a wait-and-see mode,” he said.
But Tronson expects entertainment and technology companies to continue to grow, leading to further improvement in Hollywood.
At the moment, the once-gritty neighborhood is awash in development. In the Hollywood-Wilshire corridor sub-market, more than 549,000 square feet of offices were under construction in the first quarter.
Vacancy ticked up from 17.8% in the fourth quarter to 18.1% in the first quarter, as more than 364,000 square feet of new office space hit the market.
Tronson said businesses are already scooping up the new space.
“Hollywood has established itself as one of the hottest office markets in Southern California,” he said.