Building 4With 2014 behind us, we see the market shifting from a Tenant’s Market towards a Landlords market. Vacancy rates are trending down over the last three to four quarters and rental rates are increasing. The average office building vacancy rate in Los Angeles County at the end of the 4th quarter is 11.5% (Class A is 14.7%), down from the previous quarter. In Orange County, the office building vacancy rate is down as well at 10.5% (Class A is 13.8%).

 Rates are increase quickly. Los Angeles Class A asking rental rates are averaging $33.26 per square foot per year, which is a 1.8% increase from the end of the 3rd quarter 2014. Orange County Class A asking rental rates have also increased 2.3% from 3rd quarter, averaging at $28.07 per square foot.

Building 5Absorption in LA and Orange County was overall positive in the 4th quarter. Los Angeles ended the year with over 3,000,000 square feet of positive net absorption. Orange County also had substantial positive net absorption totaling almost 3,000,000 square feet.

BuildingOrange County has delivered a total of 1.36 million square feet in 2014 but had no new deliveries in the 4th quarter. Deliveries for Orange County are predicted to be low for the majority of 2015, then spike to over 400,000 square feet in Q1 2016. Los Angeles added three buildings totaling in 45,695 square feet in the 4th quarter and there is another 2,700,000 square feet under construction.

Landlords with concentrations of high quality space (like The Irvine Company) have raised asking rental rates considerably, marking an end to the “flight to quality” phase of the market.

Investment Activity:

Office building sales figures fell in the 3rd quarter, tallying 65 office transactions in Orange County and Los Angeles; a combined value of sales of $1.86 billion. Average cap rates continue a slowly decline with Orange County averaging 6.22% and Los Angeles at 6.37%.

If you would like an in-depth market report for either Orange County or Los Angeles County please let us know below and we will be happy to e-mail you a copy.

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