By Steve Solomon, Senior Executive Vice President, and Kristen Bowman, First Vice President, Colliers International
Greater Los Angeles leasing activity surged, reaching nearly 3 million square feet in the second quarter. Although higher than the past few quarters, it was significantly lower than the 2019 pre-pandemic quarterly average of 4.6 million square feet. Much of the activity occurred in West Los Angeles, where large expansions and renewals were signed by tech, media and entertainment tenants. While leasing did ramp up, overall vacancy continued to rise, eventually reaching a historic high of 19.4 percent. This rate, which includes direct and sublease space, is 160 basis points higher than the previous peak in 2013 when it hit 17.8 percent. Nearly 25 percent of office space, whether vacant or currently occupied, is available for lease.
There is currently 4.9 million square feet of speculative new office construction underway delivering by 2023 in Greater Los Angeles. These major developments, which do not include renovations, are currently 30.7 percent pre-leased. Over half of this new construction is in West Los Angeles, which has a higher pre-leased rate of 36.6 percent. The rate is highest in Central Los Angeles, where Netflix has snatched up 44.6 percent of the new office projects in Hollywood.
Greater Los Angeles leasing activity has accelerated, with a lot of that credit going toward the large leases signed in West Los Angeles. Streaming giant Hulu completed a 351,000-square-foot expansion renewal at Colorado Center in Santa Monica, which comes on the heels of Roku’s new 72,000-square-foot lease in the same complex. Snap, Inc. and GoodRx also expanded office footprints in Santa Monica, causing this submarket to record 791,888 square feet of leasing activity. This accounts for 57.7 percent of the total leasing activity in West Los Angeles, which finished at 1.4 million square feet for the quarter.
Rising demand from entertainment tenants looking for studio product is driving up the need for office space in Hollywood and Burbank. Burbank is one of the few submarkets with single-digit overall vacancy. While average asking rents declined across Greater Los Angeles, rates in Burbank have increased for the past three quarters as Class A average asking rents hit $3.90 per square foot, per month. This is a record for the submarket. The broad demand for media content amplified during the pandemic is expected to push rates here even higher.
During the pandemic, rent growth was strongest in South Bay compared to all the other major submarkets. The year-over-year hike of 6.2 percent was more robust than the 2.8 percent in West Los Angeles. The average asking rents in other major submarkets were flat or had decreased during this period. El Segundo has stayed an active submarket, signing several large new deals and renewals this year. Other South Bay areas have struggled a bit, with landlords making more of an effort to retain and attract tenants.
We expect South Bay to continue to flourish in an otherwise flat or regressing office market. This is due to the area’s demand for amenities, lifestyle, education, and a short commute among the region’s residential communities of Manhattan Beach, Hermosa Beach and Palos Verdes. Additionally, biotech now has close to a 15 percent market share in El Segundo, with more than 1 million square feet and growing.