If the Westside of Los Angeles is the harbinger of what is to come for the rest of city’s office market, then prospects for 2014 continue to look brighter. The office vacancy rate in the submarket dropped precipitously in the first quarter of 2014 to 13.9 percent from 15.3 percent as more than 223,000 square feet of office space was absorbed. That helped to lower the overall office vacancy rate in Los Angeles to 16.3 percent from 16.9 percent at the end of 2013, according to Newmark Grubb Knight Frank (NGKF) research.
“The strong activity coming from new deals in the Westside submarket is helping to buoy the overall LA office market as some areas struggle to rebound, such as the Tri-Cities submarket, where a noteworthy 400,000-square-foot lease renewal from Nestle did little to offset negative absorption in the first quarter,” said Steve Kolsky, executive vice president and co-managing director at NGKF. “On the Westside, there is overwhelming tenant demand coming from growing media, tech and entertainment companies vying for creative space, which is increasingly in short supply.”
Scarce availability and increasing rents are prompting growing firms to look at other options. For developers, the 7.9-percent increase in Class A asking rents from a year ago is justifying new construction or redevelopment opportunities, such as Element LA, a reimagined creative campus that was successfully pre-leased to Riot Games. This project is supported by the historical demand from tech companies for adaptive reuse of single-story, bow-truss buildings into these campus-style, creative office spaces that are hard to replicate and are expensive to build from the ground up.
“The spillover effect will continue into Playa Vista and El Segundo, Southbay in particular,” said Mike Arnold, executive vice president and co-managing director at NGKF. “Faced with limited options, more technology, media and other creative companies are migrating at an increasing velocity to submarkets in the south for space opportunities that are expansive, unique and cost-effective.”
A recent NGKF example is R/GA’s planned relocation and expansion to Playa Vista, which offers more options for larger office availabilities, from Santa Monica, where space comes at a premium.
Key statistics for the Los Angeles office market during the first quarter of 2014 are as follows:
- First quarter 2014 total vacancy is at 16.3%.
- The region experienced the third straight quarter of positive net absorption with 635,346 square feet of net absorption in 1Q14.
- Los Angeles overall first quarter monthly asking rental rates for Class A space came in at $2.97/sf. Asking rental rates for Class B space at $2.22/sf.
Los Angeles Market Areas:
- West L.A.: Class A: $3.80/sf - Class B $3.06/sf.
- Downtown: Class A: $3.09/sf - Class B $2.38/sf.sf
- South Bay: Class A: $2.97/sf - Class B $2.22/sf.
- Tri Cities: Class A: $2.85/sf - Class B $2.39/sf.
- North: Class A: $2.29/sf - Class B $2.13/sf.
- San Gabriel Valley: Class A: $2.26/sf - Class B $1.85/sf.
- Mid Wilshire: Class A: $2.03/sf - Class B $1.61/sf.
Approximately 625,952 square feet of space remained under construction in the Conejo Valley, downtown L.A. and Hollywood at the close of the first quarter, and 289,000 square feet is under renovation for Riot Games’ Element LA campus in West Los Angeles.
About Newmark Grubb Knight Frank
Newmark Grubb Knight Frank is one of the world’s leading commercial real estate advisory firms. Together with London-based partner Knight Frank and independently-owned offices, NGKF’s 12,000 professionals operate from more than 320 offices in established and emerging property markets on five continents.
With roots dating back to 1929, NGKF’s strong foundation makes it one of the most trusted names in commercial real estate. NGKF’s full-service platform comprises BGC’s real estate services segment, offering commercial real estate tenants, landlords, investors and developers a wide range of services including leasing; capital markets services, including investment sales, debt placement, appraisal, and valuation services; commercial mortgage brokerage services; as well as corporate advisory services, consulting, project and development management, and property and corporate facilities management services. For further information, visit www.ngkf.com.
NGKF is a part of BGC Partners, Inc. (NASDAQ: BGCP), a leading global brokerage company primarily servicing the wholesale financial and real estate markets. For further information, visit www.bgcpartners.com.