Leasing activity in 2013 totaled 12.9 million square feet, on par with the level of activity in 2012, according to the Los Angeles Studley Report, Studley’s analysis of office market conditions in the city and surrounding areas. There was a spike in fourth quarter activity with 3.9 million square feet leased overall, a 30.9 percent increase as compared to the previous period and a 36.5 percent rise from the corresponding quarter of 2012.
“We saw a rise in activity toward year end for a number of reasons, including an increase in confidence by some Los Angeles area companies as the national economy continued its modest recovery,” said Mark Sullivan, Studley executive vice president and Southern California regional manager. “While this has translated to increased office leasing in select submarkets and by select industry sectors, most employers—particularly traditional space users—remain cautious and focused on cost containment.”
Class A activity
Los Angeles’ increasingly intertwined tech, new media and entertainment companies continue to account for a significant percentage of overall leasing activity and have pursued opportunities primarily on the Westside, with a strong preference for buildings in and around Santa Monica.
Of note, Class A activity on the Westside last year totaled 3.7 million square feet—more than one-third of the 10.1 million square feet of Class A space leased in the entire Los Angeles region.
The Class A availability rate in Santa Monica, however, was unchanged year-on-year at 12.8 percent, but Class A availability fell by 1.8 percentage points to 14 percent in Beverly Hills/West Hollywood and by 2.2 percentage points to 15.8 percent in Culver City.
Asking rents steady
Despite the year-end rally, asking rents remained flat in the final quarter of 2013. Overall asking rent in Greater Los Angeles, $28.97 per square foot, grew by a scant 0.1 percent from the previous quarter and by 0.6 percent from last year. Class A asking rent, $30.30, rose by 0.7 percent quarter-on-quarter and was unchanged as compared to one year ago.
Some activity in new developmentsThe top 15 transactions in the fourth quarter include:
While most of the significant fourth-quarter transactions were once again renewals, there was some pre-emptive lease activity in proposed and new developments as well as renovated properties. In the largest lease in a new property in several years, Riot Games took all of Elements:LA, locking in the entire 284,000-square-foot creative office campus under development by Hudson Pacific Properties on Olympic Boulevard in West LA.
Sales defy market fundamentals
The office market continues to demonstrate a disconnect between anemic leasing activity and strong investment sales demand activity. Several significant sales completed in the fourth quarter will likely propel 2013 total deal volume into the $7 billion-range, well above the $5.5 billion sold in 2013 and an even more significant increase as compared to the $2.96 total sales in 2012. Cap rates average under 7 percent.
Los Angeles office market activity remains moderate with the exception of the more dynamic sectors on the Westside, and lease renewals versus relocations continue to dominate activity overall. “Traditional space users will maintain or reduce their office footprint and, as a result, there will continue to be ample opportunities available to tenants,” noted Mike Catalano, Studley executive vice president and branch manager of the firm’s West Los Angeles office.