The Los Angeles office market slowed during the first quarter, although demand remained in positive territory. Positive net absorption totalled a mere 128,300 square feet market-wide, compared to 710,900 square feet posted in Q4 2013. The overall vacancy rate was flat at 17.2 percent; vacancy has remained stubbornly high, above 17 percent, for the past three years.
Rental rates continued to rise; overall rents were up 4.3 percent year-over-year. Class A rents were up 3.9 percent, while growth has been stronger in Class B property at 4.8 percent. The repositioning of Class B and C property into creative office space has helped to push rental rates higher in an otherwise flat market. In many cases, rents for creative space are higher than Class A rents, and developers have taken notice. Indeed, 60 percent of the office construction currently taking place in the Los Angeles market is designated as creative.
Los Angeles witnessed a rise in new construction during 2013, but no new projects commenced during Q1 2014. Presently, 973,700 square feet remains under construction with completion estimates for 2015 and beyond. The pace of leasing activity slowed significantly as 2013 drew to a close, and that trend continued into the latest quarter. Market transactions totalled 3.1 million direct, and approximately 300,000 square feet in sublet activity.
Source : DTZ (Groupe UGL)