Southland office rents, occupancy rates stay low
It was another stale quarter for most Southern California office landlords as rents and occupancy remained stalled at low levels, except in neighborhoods favored by technology and digital media companies.
The soft market was a boon for tenants willing to sign leases. But few companies are finding the need to expand their quarters with the economy tepid and hiring at a standstill.
Business bosses “have gone on a personnel diet,” said Jim Kruse of CBRE Group Inc., the real estate brokerage formerly known as CB Richard Ellis. “They are trying to get through and maintain as much market share as they can without putting a lot of cash into operations.”
Overall, Los Angeles County office vacancy rose slightly to 19% from 18.5% in the third quarter last year, according to brokerage Cushman & Wakefield. The average rent landlords asked for was $2.47 a square foot per month, down from $2.56.
Among the bright spots for the quarter in Los Angeles County was positive “absorption,” which means tenants moved into more space than they vacated. It was the first positive quarter since the fourth quarter of 2007. Leading the growth were Santa Monica and Burbank, enclaves of tech and entertainment.
Absorption was down for the first nine months of the year, but new deal activity in the third quarter was brisk compared with a year earlier, Cushman & Wakefield said.
“It’s still really lumpy out there,” said Kruse of CBRE, with both positive and negative signs about the real estate market to be found. “I would say we are bouncing along the bottom.”
One other small positive sign is that landlords, who have been loath to part with a buck for the last two years, are starting to spend some money improving their properties in the hope of attracting new tenants, he said.
Brokers said it was unlikely that there would be dramatic changes soon in the office market. “It’s mirroring the economy,” said Joe Vargas of Cushman & Wakefield.
With job growth stalled, “we’ll continue to see high vacancy rates, and rental rates will continue to go down,” Vargas said. “It will continue to be a tenant’s market through at least the first three quarters of next year.”
Orange County absorption tilted from red to black and leasing activity grew in the third quarter, which helped bring overall vacancy down to 18.8% from 21.6% a year earlier. The technology industry was also a driver there, Kruse said, along with electronics manufacturing.
The Inland Empire is still suffering from a host of office projects built on speculation during the last boom, he said. Vacancy there is almost 24%, barely lower than it was last year.
“In our industry, it’s all about jobs and money,” Kruse said. “A lot of really key, smart people are trying to figure it out. Next year will be a little better than this year on all fronts.”
