11.2%, Orange County dropped from 10.7% to 7.2%, Riverside-San Bernardino counties went from 9.5% to 7.0%, and Ventura County was down from 11.2% to 9.0% a year ago. The LAEDC has calculated office space need by industry sector: “Professional Services” (which includes accounting, law, architecture & engineering, as well as personnel services) posted 52 major expansions in 2005, up from 41 in 2004. “Logistics” had 26 major expansions, down from 34 in 2004. The “Finance & Insurance” industry had 12 major expansions in 2005, down from 27 in 2004. The “Entertainment Industry” had 11 major expansions in 2005, down from 12 in 2004. “Apparel & Textile” had 10 major expansions, down from 14 in 2004. “Aerospace/Defense” and “Hi-Tech” both had 9 major expansions compared to 10 during 2004. Three of Southern California’s major projects in 2005 were out of state relocations from Colorado, Nevada, and Texas - this was up one project in 2004. Foreign firms accounted for 18 major office expansions during 2005, unchanged from the previous year. The expansions came from Australia (1), Canada (2), Chile (1), Germany (3), Japan (6), South Korea (2), Sweden (1), and United Kingdom (2).
"The overall economy is continuing to grow and a lot of the growth is coming in sectors that are big users of office space," stated economist Jack Kyser of the LAEDC.
Cushman & Wakefield reported that at the end of 1Q 2006, average asking rents were $2.14 per square foot per month, up 9 cents from 1Q 2005. By the end of the year, the National Association of Realtors predicts that office vacancy rates will be around 11% nationally, with rates dipping as low as 5% in parts of Southern California.
Meantime, for those buying and selling office buildings, prices, on average, have soared above $200 per square foot. The Los Angeles Times reports that the average price per foot for office buildings rose to $196 in 2004, up from $156 in 2003. Meantime, prices downtown hit $350 a foot this year. Sale prices are well above $400 per square foot in downtown Santa Monica.
Nationwide, N.A.R. reports that office rate vacancies were 12.6% for
1Q 2006, predicted to drop down to 12.1% for the second quarter. This
is the first time since the summer of 2001 that the national office vacancy
rate has dropped to under 13%.
The LA Times stated that Downtown's vacancy rate fell to 14.6% from 16.3% in the first quarter and rents climbed 24 cents to $2.29. Other markets including Pasadena and the San Fernando Valley have also tightened. Average monthly asking rents in Santa Monica were the highest in the county at $3.61 per square foot, a 26% increase from a year ago. The vacancy rate fell to 4.6% from 7.5% a year ago.
"We are going to be in a much stronger landlord market for the next 24 to 30 months until more space comes online," Porter noted.
Landlords like the Inglewood-based Trizec Properties Inc. are expected to raise rents and reduce concessions, observed Trizec Vice President Patrick Lacey. Trizec has just taken title to several large Westside office buildings, which it is purchasing from Arden Realty Inc. as part of a $1.6-billion deal.
"We bought into that market because we saw that's where the growth is going to be," Lacey said.
New development is modest, and will not accommodate demand. The Construction Industry Research Board noted that during 2005, industrial building permits valued at $755.8 million were issued in the five-county region. Los Angeles County’s industrial building permit value was $277.4 million, Orange County’s total was $26.9 million, and Ventura County had $20.1 million in industrial permits. The Inland Empire had the biggest industrial building permit total -> $431.5 million.
"Gross and net absorption reached five-year highs in most markets across Southern California during 2005, contributing to declining vacancies and increasing rents throughout the region," concluded Erika Gjovik, director of research for GVA DAUM. "As continued job growth is forecasted for Southern California in 2006, we expect vacancy to hover near the historically low levels reached during 2005."
For more on Southern California commercial properties there is a great
information blog at www.socalindustrialrealestateblog.com.
* Source: Cushman & Wakefield