Market Report: Office in Los Angeles County, CA
Market Overview
The Los Angeles office market is comprised of 210.4 million square feet in twenty-one geographic concentrations ranging in size from the 38.9 million square foot Downtown submarket to the Mid-Cities submarket, which accounts for 1.8 million square feet. In the ten-year period beginning with Q2 2014, the Downtown submarket has experienced the greatest introduction of new inventory, 3.3 million square feet, amounting to 20.5% of all new competitive stock added to the market.
Asking and Effective Rent
During May, the metro's asking rent remained unchanged at $42.24. Since the same reporting period last year, asking rents have climbed by 0.8%, up from $41.89. Since the beginning of Q2 2014, the metro as a whole has recorded an annual average increase of 2.4%. Effective rents, which exclude the value of concessions offered to prospective tenants, increased by 0.1% during May to an average of $33.67. Although all of the Los Angeles metropolitan area's twenty-one office submarkets contributed to the metro's recent rent growth, it is worth noting that the 0.8% asking rent growth rate of the past 12 months compares unfavorably to the metro's long term performance.
Competitive Inventory, Employment, Absorption
Total employment in the Los Angeles metropolitan area increased by 14,200 jobs during the first quarter, representing a growth rate of 0.3%, while in the dominant office-using industries, employment grew by 4,600. Absorption rates of competitive office space may not immediately reflect quarterly total job gains or losses, but it is prudent to consider longer-term economic and demographic performance as influential upon current occupancy levels. Since the beginning of Q2 2014, the average growth rate for office-using employment in Los Angeles has been 0.7% per year, representing the average annual addition of 9,200 jobs. During May, leasing activity generated 48,000 square feet of absorption. Over the last 12 months, market absorption totaled negative 1.3 million square feet; by comparison, the average annual absorption rate recorded since the beginning of Q2 2014 is 598,200 square feet. The net increase in vacancy from one year ago is 70 basis points to a level of 18.4%. From an historical perspective, May vacancy rate is 3.0 percentage points higher than the 15.4% average recorded since the beginning of Q2 2014.
Outlook
Reis is tracking office construction activity that will deliver 1.2 million square feet to the metro by the end of the year, and net total absorption will be positive 640,000 square feet. As a result, the vacancy rate will drift upward by 0.2 percentage points to 18.6%. During 2025 and 2026, construction activity under surveillance is projected to deliver a total of 2.8 million square feet. Office employment growth at the metro level during 2025 and 2026 is expected to average 0.3% annually, enough to facilitate an absorption rate averaging 1.9 million square feet per year. The market vacancy rate will finish 2025 at 18.3% and will decline 0.4 percentage points to 17.9% by year end 2026. Between now and year-end 2024 asking rents are expected to rise 0.9% to a level of $42.60, while effective rents will advance by 0.4% to $33.82. On an annualized basis through 2025 and 2026, asking and effective rents are expected to increase by 1.7% and 1.9%, respectively, to finish 2026 at $44.10 and $35.15.
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