Monday, October 18, 2010

Los Angeles Office Market Q3 2010: Holy Concession, Batman! Depressed Job Market Correlates with Sinking Rents and Office Demand and the Best Pro-Tenant Market in Decades

In case you hadn't heard, there's a recession out there and droves of jobs have been lost for various and sundry reasons like (1) we're crawling out from under a twenty-year financial bubble that's popped, (2) we're in the midst of globalization that's sending jobs from urban centers like Los Angeles to locales overseas, and (3) we're experiencing technological advances that are making it more and more pointless to heat, cool, and pay for office space for workers who are most frequently not at their cube.

Given the dire state of traditional employment, the rapidly shifting economic landscape, and the lack of visibility moving forward, it should come as no surprise that the fundamentals for the office market in Los Angeles are just south of rotten.

Consider these grim statistics: overall vacancy across the Southland was 20% in Q3 2010, up from 17.5% in the same quarter a year ago.  Vacancies are now at a 15-year high, and the average asking rent is $2.35/sq ft, $.13/sq ft less than a year ago.

Some markets have been impacted worse than others.  The Downtown Los Angeles market has been flat for for years.  The building boom of the late 1980s and 1990s resulted in office space that's never been fully absorbed, even in the "go go" days of the dot-com area of the mid-2000s.  Downtown vacancy was nearly 18% in the 3rd Quarter, compared to 16.6% on the Westside.

By any measure, these are grisly statistics.  However, Los Angeles has been through this cycle before, and it's entirely possible that little by little, over years, the office space will be absorbed, and market dynamics will improve in favor of landlords.  (It's noteworthy that at the lows of the last economic cycle, around 1991, office vacancies were as high as 23%).  But for the time being, here's some advice for tenants: put your feet up on your desk, kick back, call your landlord, and listen with glee as they accept your rent reduction and cater to your every concession.

Los Angeles Times: Tenants Rule Commercial Real Estate Arena