Demand for office space in the Los Angeles office market picked up during the second quarter. Positive net absorption totalled 478,800 square feet market-wide, compared to 128,300 square feet posted in the previous quarter. The overall vacancy rate fell to 16.5 percent; from 16.8 percent in Q1 2014 and is now at its lowest level in more than three years. Growth from technology and digital media continues to drive demand across much of the market.
Rental rates continued to rise; overall rents were up 5.2 percent year-over-year. Class A rents were up 4.5 percent, while growth has been stronger in Class B property at 5.9 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.
With an improving economy, Los Angeles is finally beginning to witness new construction of office projects. Nearly 1.4 million square feet is currently under construction with completion estimates for 2015 and beyond. Leasing activity has also increased, although the prior two quarters were particularly slow. Market transactions totalled 3.5 million direct, and approximately 240,000 square feet in sublet activity.
Source : DTZ (Groupe UGL)