LOS ANGELES OFFICE MARKET FLAT ACCORDING TO Q2 2012 STUDLEY REPORT
Los Angeles, CA (July 30, 2012)
Although the Los Angeles economy has gained some positive momentum, particularly within the creative sector, overall growth is sluggish, tempering office market activity. Regional overall leasing activity totaled 2.6 million square feet for the first quarter of 2012, declining 20.9 percent from last quarter and 9.8 percent from the corresponding period of last year, according to the Los Angeles Studley Report, Studley’s analysis of office market conditions in the city and surrounding areas. On a trailing four-quarter basis, overall leasing equaled 12.4 million square feet, a decrease of 2.2 percent from the previous quarter.
“While the entertainment, digital media and tech sectors have been steadily absorbing space, Los Angeles’ traditional professional and business services industries continue to streamline operations,” said Mark Sullivan, Studley executive vice president and Southern California regional manager. “There is still movement by these companies, but most tenants are trimming occupancy as they renew or relocate.”
Availability rate in holding pattern
This disparity in activity among industry sectors is reflected in the fact that the availability rate is holding steady. Despite the rapid expansion of the creative sector, the overall availability rate equaled 19.5 percent in the first quarter, unchanged as compared to the fourth quarter of 2012. The Class A rate was essentially flat as well, increasing by a mere 0.2 pp to $20.7 percent.
Los Angeles had 30.9 million square feet of Class A office available for lease at the close of the first quarter, basically on par with the 30.8 million square feet available a year ago, and well above the 17.7 million square feet available five years ago. “Given the uncertainty in the broader economy and the ample opportunities available to tenants, landlords lack pricing power in all but a handful of scenarios,” noted Mike Catalano, Studley executive vice president and branch manager of the firm’s West Los Angeles office.
The overall asking rent in the greater Los Angeles area equaled $28.37 per square foot in the first quarter and the Class A rent equaled $29.77, both representing a slight decrease as compared to the previous quarter.
Despite the professional service sector’s limited growth, law firms accounted for the region’s two largest leases in the first quarter, both signed at 333 S. Hope Street in Downtown. Kirkland & Ellis renewed for 101,412 square feet ,and Alston & Bird leased 80,671 square feet, pushing the building’s occupancy to 97 percent.
Activity is expected to hold steady in the short-term and lease dynamics will remain constant as well. However, the value of concession packages has likely peaked and rents could inch up slightly.