Los Angeles County’s office market gained solid footing in the fourth quarter of 2014, with overall vacancy at 16.1%, a 2.1 percentage point (pp) decrease year-over-year, and the largest drop in overall vacancy since 2009, according to Cushman & Wakefield’s 2014 Fourth Quarter Southern California Office Report.
The strength of the market lies in 10,000- to 25,000-square foot (sf) tenants, but larger leases did close. Leasing activity of 13.6 million square feet (msf) represents an increase of 5.5% year-over-year, and the highest total since 2007. Overall absorption of 3.8 msf far outpaced the 295,000 sf of year-end 2013, largely due to creative/tech tenants.
“Los Angeles County is in a good place, and Downtown is a viable player in the market. The ‘new normal’ and ‘slow growth’ is behind us. We’re in a new phase of growth, and we’ve surpassed pre-recession levels,” said Petra Durnin, Managing Director of Research for Cushman & Wakefield in Los Angeles.
Landlords increased asking rents in reaction to this new growth. Direct rent is $2.69 per square foot per month, a 5.5% year-over-year increase. This is the highest direct rent has been since 2008 and the largest annual increase in as many years. Direct Class A rent is $2.98 per square foot per month, which represents an increase of 5.3% year-over-year.
In Downtown Los Angeles’ Central Business District (CBD), overall vacancy dropped to 20.8%. This drop is largely attributable to Lewis Brisbois taking 215,000 sf at U.S. Bank Tower after a fire damaged the firm’s space in a city-owned building, but other large tenants moved in as well, including WeWork, one of the many tech tenants coming to Downtown. Direct asking rent for Class A properties rose 8.5% year-over-year to $38.92 per square foot per month.
Year-to-date leasing activity in the CBD was 1.7 msf, with 624,684 sf leased in the fourth quarter alone.
Los Angeles West’s market fundamentals further strengthened in the fourth quarter of 2014. Large technology companies and start-ups alike spurred much of the activity; start-ups, for example, are renting large spaces for their businesses.
In Playa Vista, in particular, overall vacancy dropped 14.9 pp year-over-year to 23.7%. This submarket’s vacancy is nearly half of what is was just two years ago.
The 1.4 msf of direct positive absorption in Los Angeles West in 2014 was the highest level of occupancy gains since 2005.
There was 4.5 msf of leasing activity for the year in this market, also marking a high point since 2005, and the third consecutive year where leasing activity in Los Angeles West exceeded 4.0 msf.