REBusinessOnline

LA absorbs 800,000 square feet of office space in six months.

Though a balanced Los Angeles office market may be a year away, the situation is certainly looking more promising than a year ago. This is due to rising rents, positive (and continued) absorption and increased transaction volume. These trends are buoyed by falling unemployment rates, which declined to 11.1 percent in the second quarter, compared with 12.4 percent a year ago.

Professional services companies led this charge, adding 16,500 jobs over the past 12 months. Entertainment and media also showed robust gains, adding 8,000 jobs over the same period. Government and manufacturing sectors represent the opposite end of the spectrum and still lag in the recovery.

As expected, creative users within the respective fields of entertainment, social media and gaming companies continue to drive leasing activity. This is particularly true on the Westside where companies like Riot Games in Santa Monica, Google in Venice and YouTube in Playa Vista abound. DirecTV also recently signed a 205,202-square-foot renewal in El Segundo.

Many Los Angeles companies are also once again thinking about recruitment and seeking out locations that appeal to their employee base. One example is law firm Morrison Forester, which is relocating from Downtown’s Bunker Hill to the amenity-rich Financial District.

Together, these deals have created 800,000 square feet of positive absorption over the past six-month period, the highest level of absorption since the Great Recession. Additional Downtown relocations are expected in the next few quarters, along with more long-term lease signings as companies gain increased confidence in the regional economic outlook.

Banking and law firms, which make up much of the Downtown and Century City tenant bases, will experience a great deal of growth. These professional services sectors endured aggressive downsizing during the Great Recession, but they are projected to have the greatest employment gains during the recovery. This should help occupancy rates across the market.

Ownership structure is also more stable in Century City, with the largest landlord, JP Morgan, controlling 41 percent of the market. In contrast, MPG Office Trust’s share in the Downtown market has contracted from 40 percent in 2011 to 30 percent today, as Two California Plaza was transferred to special servicing at the beginning of 2012. A number of mid-rise assets have traded in 2012 as well, offering investors a lower entry point into the Downtown Skyline 34.

All of these are examples of increased volume across the capital markets front, and that volume continues to progress from 2009 and 2010 levels. The Downtown CBD and the Westside experienced the most capital markets activity during the second quarter. Key deals included the Wedbush Center, a landmark, Class A Downtown asset that traded to Lincoln Property Company, and the Broadway Plaza in Santa Monica, which set a high watermark for the year at $546 per square foot.

Yes, Los Angeles continues to lag behind the state and nation in terms of job creation, but recent gains have nonetheless prompted a conservative optimism for growth. We expect this growth to come from the professional services firms, which will positively impact Downtown, North Los Angeles and the Tri-Cities submarkets. It will also improve leverage for their landlords (though landlords will not truly have the upper hand until 2015). We also anticipate concentrated new spatial demands on the Westside, driven by smaller tenants operating in technology and entertainment niches. Collectively, this all points to the positive and indicates that the Los Angeles office market is on a definitive path to recovery.

— Anthony Gatti, managing director, Jones Lang LaSalle

Content Partners
‣ Arbor Realty Trust
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Northmarq
‣ Pavlov Media
‣ Walker & Dunlop

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