Friday, April 10, 2015

LA Times: Office Vacancy Rate Declines

by Bill McBride on 4/10/2015 10:30:00 PM

Overall the office vacancy rate is falling, but still too high to spur a significant amount of new construction. However there are some submarkets that might see some new investment.

From Roger Vincent at the LA Times: L.A. County office market tightens in first quarter

Overall Los Angeles County vacancy fell to 16% in the first quarter from 18% in the same period a year earlier, according to the brokerage. Landlords raised their average asking rents 6%, to $2.73 per square foot a month.

But the county office market has many submarkets, among which demand and rent vary widely. The popular Westside, for example, has been improving for the last few years even as other submarkets, including downtown Los Angeles, were stagnant.
...
"We have a dozen submarkets below 10% vacancy now," [Petra Durnin, managing director of research for real estate brokerage Cushman & Wakefield] said. "That indicates the market strength we have been feeling is a reality."

Vacancy below 10% is considered a tight market, one that favors landlords in rent negotiations with tenants. Developers are also inclined to build new offices when vacancy falls below 10%, but so far there is little construction compared with other periods of prosperity in recent history.

No large office buildings came online in the first quarter, Durnin said, and only 1.5 million square feet of offices are under construction — a fraction of the existing inventory of 195.8 million square feet in L.A. County.