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L.A. County office market improves in third quarter as economy holds up

L.A. County office market improves in third quarter as economy holds up
Chase Plaza in downtown Los Angeles has been sold for more than $50 million. (CBRE Group)

Los Angeles County businesses expanded and leased additional offices last quarter, casting off concerns over the direction of the larger U.S. economy.

In doing so, firms sent the county's vacancy rate down slightly to 13.9% from 14% in the second quarter. Average rents in the third quarter rose 5 cents to $3.07 a square foot per month, according to data from commercial real estate brokerage CBRE Group Inc.

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"Los Angeles is in a very good place," said Petra Durnin, CBRE's director of research, noting that rents are lower than other marquee locations such as Manhattan, where reports of a slowdown have surfaced. "There is still room for them to grow."

Behind the improvement is steady job growth. As of August, employers in L.A. County had added 76,100 jobs over a 12-month period, an increase of 1.8%, state data show.

Demand for new offices has been robust along a broad swath of industries, particularly in the technology and creative fields, said Andrew McDonald, executive managing director of the greater Los Angeles region for real estate brokerage Cushman & Wakefield.

That comes despite some uneasiness over how long the current economic expansion will continue and whether uncertainty surrounding the presidential election would hamper growth. On Tuesday, for example, the International Monetary Fund downgraded its forecast for the U.S. economy.

"When we talk to our clients, whether they be defense, entertainment, real estate, finance, we are seeing a far more confident look … than would be anticipated," McDonald said.

Confidence is particularly strong on the Westside, where a tech boom is underway.

Average asking rents rose 9 cents from the second quarter to $4.64 a square foot per month, in a market where 1.28 million square feet of offices are under construction — the most of any within the county.

Developers are looking to add offices to cater to technology firms expanding in Santa Monica, Venice and Playa Vista.

Developer Tishman Speyer, for example, is expected to complete the 425,300-square-foot Playa Vista office campus known as the Brickyard by the end of the year.

The Westside vacancy rate climbed to 10.9% from 10.4% in the second quarter, which experts characterized as a blip. Vacancy remains well below the 13.1% rate of a year earlier.

Among the biggest deals in the third quarter was the sale of downtown's Chase Plaza, a 15-story Bunker Hill tower built in 1974.

Phillip Sample, a real estate broker with CBRE Group who represented the seller and buyer, said the building sold for around $540 per square foot, a price that he estimated was the highest for a downtown office building in at least 10 years.

"Downtown is a very, very hot market," Sample told The Times last week, noting that investors want to be in the urban core as millennials move downtown and the region's public transportation network expands.

As a whole, downtown asking rents climbed 3 cents to $3.30 a square foot per month. Vacancy rates fell to 16.8% from 16.9%.

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Unlike the Westside, new office buildings have so far been limited downtown, in part because the neighborhood has long struggled with oversupply following a decades-long skyscraper building boom that lasted until the early 1990s.

Amid downtown's renaissance, though, more construction is planned — including on a parking lot next to the Los Angeles Times building where a Metro train station is now under construction.

Tribune Media, which owns the lot on Spring and 2nd streets, is planning a 30-story tower with 107 condos and 534,000 square feet of office space.

McDonald of Cushman & Wakefield said there is demand for new supply downtown, even though the vacancy rate is higher than other markets in the region. That's because both businesses and employees want to be there.

"Going forward, the trend is certainly toward areas that provide access to transportation and provide an educated employee base," he said. "Downtown offers that in spades."

Follow me @khouriandrew on Twitter

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