Leasing in the Los Angeles office market was sluggish during the third quarter, with activity falling by 16.5 percent from 3.6 million square feet leased in the second quarter to 3.0 million square feet, according to the Los Angeles Studley Report, Studley’s analysis of office market conditions in the city and surrounding areas.
“It is too soon to say whether the pullback was due to the customary summer slowdown or meaningful concerns about the shaky economy and the lack of significant employment growth,” said Mark Sullivan, Studley executive vice president and Southern California regional manager. “Office-using employment fell in most U.S. markets during the last three months, including Los Angeles which lost 11,000 office-using jobs during this period.”
Consistent leasing activity has been limited to properties within select submarkets that offer the newest and highest-caliber product. Only two submarkets in the region have posted above-average leasing activity in the last four quarters – Century City (961,128 - + 5.3%) and Fox Hills/Marina (854,704- +28.5%).
Activity in all other submarkets has been about 20 to 40 percent below historical numbers.
A few submarkets have benefited from a modest flight to quality. Silicon Beach in Santa Monica is one such pocket of activity, with Class A availability falling to 11.6 percent - a 4.4 pp decline from a year ago.
“Although Santa Monica has been more active than many other L.A. county submarkets, it does not necessarily mean that others will follow. In fact, right-sizing and expense reduction still dominate tenant motivation.” said Mike Catalano, executive vice president and co-branch manager of Studley’s West LA office. “With economic uncertainty still looming, we will likely still experience quarters of negative net absorption in the year to come.”
Overall availability has remained static with little decline or increase in supply. The region’s overall availability rate rose by 0.1 pp from 20.2 to 20.3 percent, boosted by a 0.2 pp jump from 20.9 to 21.1 percent in the Class A sector.
L.A has 31.1 million square feet of Class A space currently being marketed, an increase of 76.8 percent from the 17.6 million square feet available in the fourth quarter of 2006 when the market was last at its tightest.
“With the exception of tenants seeking blocks in excess of 100,000 square feet, most smaller and mid-sized firms can afford to be deliberate and selective in their real estate decision-making. The balance of the market seems to have stabilized but is showing few signs of any pervasive forward movement,” noted Sullivan.
Many tenants are still trimming occupancy as they renew or relocate although a few expansion leases have been executed, including Akin Gump Strauss Hauer & Feld’s 25,000-square-foot lease at the US Bank Tower in Downtown Los Angeles, representing the firm’s first Downtown office.