Is it a Landlord’s market yet? In a word, “No.” However, the overall office market made significant gains in 2013. And, as in the past, there are winners and losers from market to market and project to project. Nationally, as result of continuing employment gains in the office using sector of the economy, the office vacancy rate decreased to about 15%. Los Angeles was one of the standout markets with big gains in the technology sector. Over 35 million square feet was absorbed across the country, with almost half of that coming in the 4th quarter. Asking rental rates climbed as well. Approximately 18 million square feet of new office space was delivered and about $100 billion worth of office buildings traded hands.
So whats next? More money is definitely flowing into real estate in 2014. Every day another fund seems to have been created for the purpose of buying or developing office space. And the insurance companies are buying again too. If your a tenant this is a good thing. More development means more vacancy is likely on the way. Couple the new development with the smaller footprints created by the adoption of new workplace strategies and vacancy rates should stop decreasing and potentially rise. Of course, this is all dependent on the growth of the workforce, which, although steadily increasing, has been very slow indeed.
Below are links to statistical reports with submarket breakdowns for the markets of Los Angeles and Orange County. As you will see there is great disparity between submarkets and product types. Although the tenant base took advantage of the latest real estate recession to upgrade their space (“Flight to Quality”), you will notice that the Class C buildings have the lowest vacancy rates, followed by the Class B and Class A buildings, respectively.
The Los Angeles Market ended up with an overall vacancy rate of 12.3%. Class A was the most vacant at 15.9%, Class B was 11.8 % vacant and Class C space was 5.3% vacant. Santa Monica was the only major submarket with under 10% vacancy at 8.8% (Class A).
The Orange County Market ended up with an overall vacancy rate of 11.6%. Class A was the most vacant at 14.4%, Class B was 11.3 % vacant and Class C space was 7.5% vacant. Irvine, the largest Class A submarket stood at 16% vacant while Newport Beach Class A product was only 10.2% vacant. Expect Newport Beach vacancy to increase as 680,000 square feet of new product is coming on line in 2014.
Enjoy the numbers!
Data for this blog and its attachments are made possible by CoStar Property.