From the OCBJ
OFFICE MARKET
The economy in greater Los Angeles is starting to emerge from the recession, though at a slower pace than other markets.
The housing market has begun to stabilize. But the area’s unemployment rate remains high at 12.6%, and the rate of job growth during the next few years will be modest.
The office market has seen a downturn during the past few years.
Weak demand caused by tenants continuing to evaluate their financial strategies has contributed to the lack of any bounce back in the near future.
The majority of transactions secured during the first three quarters have been renewals, furthering the belief that tenants are attempting to capitalize on the favorable market conditions with lower lease rates and generous concession packages.
In many cases, these tenants also are foregoing shorter extensions in favor of signing longer leases.
At the end of the third quarter, the overall vacancy rate was 18%, up from 17.4% in the second quarter. On a positive note, the rate of increase has been slowing compared to previous quarters.
Another positive sign is that the amount of sublease space has continually declined in the past year.
At the end of the third quarter, there was just more than 3 million square feet of sublease space on the market compared to nearly 4 million square feet at the same time last year, representing a 23% drop in the past 12 months.
The absence of substantial construction will continue to shorten the recovery time of the local market.
Tenants will expand by leasing space from what’s currently available, which will allow for much-needed relief to the rising vacancy rates.
INDUSTRIAL MARKET
During the first half of 2010, the economy appeared to be recovering from the recession at a more robust pace.
But recently, economic trends toward recovery have slowed. Although the housing market has begun to stabilize, growth in retail sales has slowed, continued jobless claims point to minimal employment gains, and the manufacturing sector has slowed from the first quarter’s strong performance.
Although the economic indicators remain relatively weak, the greater Los Angeles industrial market continued to outperform many others across the country.
During the first three quarters of the year, the industrial availability rate dropped from 8.3% at the start of the year to 7.6% at the end of the third quarter.
A portion of this drop can be attributed to users taking back space that previously was on the market as they prepare for an expected increase in activity. But a noticeable increase in tenant activity also has had a positive impact on the market.
Total gross activity for the quarter was about 10.7 million square feet in greater Los Angeles, up from 8.2 million square feet during third quarter 2009.
Net absorption also was positive during the quarter, totaling more than 2.6 million square feet.
This was the second consecutive quarter and only the second time since fourth quarter 2007 that the market experienced positive growth. In the previous 10 quarters, the greater Los Angeles market averaged negative 1.6 million square feet of net absorption per quarter.
During the next six to eight months, the market should continue to see modest activity levels as firms begin to hire again with increased consumer spending.
Companies will continue to rebuild in- ventories as the demand for industrial space continues to rebound. But the average quar- terly pace still will be below the levels during the last housing boom and economic recovery period.
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