Over 40 Million Square Feet of Office Space Available in Fourth Quarter According to Los Angeles Studley Report
Los Angeles, CA (February 10, 2010)
Greater Los Angelesâ?? overall availability rate increased by 0.3 percentage points in the fourth quarter, reaching 19.7 percent, according to the Los Angeles Studley Report, Studleyâ??s analysis of office market conditions in the city and surrounding areas. This is the 11th straight quarter in which availability increased and, currently, there is more than 40 million square feet of office space for lease, a staggering amount considering that the total was 25 million just two years ago.
The Class A availability rate, 20.8 percent, also rose by 0.3 percentage points for the quarter.
"With the market awash in space, the opportunities for tenants have never been betterâ??from companies seeking long-term solutions to those needing swing spaceâ??and landlords and sublessors are offering extremely generous concessions and flexible terms," said Mark Sullivan, Studley executive vice president and regional manager for Southern California. "Still, demand remained well below average, even with the modest rebound in leasing activity in the fourth quarter."
He added, "Continued caution on the part of businesses and aggressive efforts by landlords to keep their current rosters intact are tempering relocations."
Renewals dominate activity
Tenant leasing totaled 3.4 million square feet in the fourth quarter, an increase of 27.4 percent from last quarter and 21.4 percent from last year. On a trailing four-quarter basis (the sum of all leasing activity over the last four quarters), overall leasing equaled 10.4 million square feet, an increase of 6 percent from the previous quarter but a decline of 16 percent year-over-year.
"Renewals continued to dominate activity, and the few expansions taking place are being executed primarily by countercyclical sectors such as education and government agencies," said Mike Catalano, executive vice president and branch manager of Studleyâ??s West Los Angeles office. "The U.S. GSA, for example, signed a 72,000-square-foot renewal at 606 South Olive Street that included a 13,000-square-foot expansion."
Rents continue slide
Overall asking rents registered a decline of 1.8 percent during the fourth quarter and 8.2 percent for the year, to $29.84 per square foot, the first time itâ??s fallen below the $30-mark since the opening quarter of 2007. Class A asking rents fell 1.6 percent this quarter, to $31.66, and 9.2 percent year-over-year
"Effective rents continue to decline but rental rate adjustments are being hampered by the inability of some landlords to fund improvement allowances and other components of concession packages," noted Catalano. "Only landlords who can structure deals that offer free rent and hefty improvement dollars from day one, or flexibility on commencement date or parking, will be able to draw firms away from their current locations."
Fourth quarter transactions
The 15 largest transactions of the third quarter included:
Even with the slight improvements in the California economy, the most critical component of demand for office space â?? employment â?? does not appear likely to gain traction until late 2010 or early 2011 at the soonest. Once hiring does gain momentum, companies will
still be backfilling excess space for several quarters. Rental rates are likely to continue their decline for the next four to eight quarters. "The best opportunities will be specific to particular owners and buildings, but, in general, large creditworthy tenants should be able to leverage significant cost savings over the next several quarters," concluded Sullivan.
About Studley. Studley is the only global tenant advisory firm with a pure tenant representation delivery platform. Founded in 1954, Studley pioneered this conflict-free business model. Today, with 19 offices nationwide and an international presence through its London office and AOS Studley throughout Europe, Studley provides strategic real estate consulting services to top-tier corporations, law firms, nonprofits, government agencies and institutions of higher education. Information about Studley is available at www.studley.com.