Vilgiate: I would say that is accurate. There are a lot of different types of tenants from various industries that are looking to relocate to Downtown Los Angeles because it has now become a 24-hour lifestyle city. All roads lead to Downtown, and it has become the most convenient place in the city for public transit. Over the next several quarters and certainly within the next two years, we will certainly see and hear about a lot of major leases being signed Downtown. In that time a lot of the properties under renovation will be complete and ready for occupancy, and that type of real estate is highly sought after by today's tenant base.

GlobeSt.com: Why are rental rates continuing to increase, despite the rise in vacancy rates?

Vilgiate: That is due to the fact that buildings are trading at all time highs and optimism is high as well for the future. When you have West L.A., Hollywood and Culver City experience exponential rent growth, Downtown L.A. is merely drafting behind that. It is truly driven by what buildings are selling for these days. Downtown is still a discount to those other markets. So, investors are willing to pay more because they realize that discount it substantial and L.A. is adding ore amenities. This all unfolds to be a beautiful story for Downtown L.A. over the next several years.

“Ultimately, it is going to be successful,” says Nico M. Vilgiate, EVP at Colliers International, about the office market in Downtown Los Angeles. The second quarter report from Colliers International shows an increase in the office vacancy rate in DTLA, up to 20.4% from 19.8%, and negative net absorption at -97,000 square feet. The is the second consecutive quarter that the vacancy rate in Downtown Los Angeles has increased and absorption has been negative. Despite these lackluster stats, Vilgiate says that the market is actually strong with new tenants migrating to the market and increasing absorption of creative office space. To find out more about the market dynamics, we sat down with Vilgiate for an exclusive interview.

GlobeSt.com: Why is Downtown Los Angeles having such a difficult time in the office market?

Nico M. Vilgiate: Downtown, historically, has been a high-rise office market, and a lot of the companies that have active in that type of real estate have been right sizing for the last several years. Some of that has been continuing, and contributing to the stagnation in the market. The real story in Downtown, however, is about growth. There is a lot of positive absorption in the market from industries that are atypical for the market. Apparel, fashion and art are all expanding. Warner Music made a big commitment downtown, and we are starting to see a lot of nontraditional users leasing space that are more creative. The numbers suggest that the market is bumping along or that there isn't much progress, but we are adding a lot of new inventory to Downtown Los Angeles. Because we are taking historical buildings that are not in the mix and that inventory is being added to the overall base.

GlobeSt.com: If you segmented the creative office space, would the stats improve?

Vilgiate: I would say that is accurate. There are a lot of different types of tenants from various industries that are looking to relocate to Downtown Los Angeles because it has now become a 24-hour lifestyle city. All roads lead to Downtown, and it has become the most convenient place in the city for public transit. Over the next several quarters and certainly within the next two years, we will certainly see and hear about a lot of major leases being signed Downtown. In that time a lot of the properties under renovation will be complete and ready for occupancy, and that type of real estate is highly sought after by today's tenant base.

GlobeSt.com: Why are rental rates continuing to increase, despite the rise in vacancy rates?

Vilgiate: That is due to the fact that buildings are trading at all time highs and optimism is high as well for the future. When you have West L.A., Hollywood and Culver City experience exponential rent growth, Downtown L.A. is merely drafting behind that. It is truly driven by what buildings are selling for these days. Downtown is still a discount to those other markets. So, investors are willing to pay more because they realize that discount it substantial and L.A. is adding ore amenities. This all unfolds to be a beautiful story for Downtown L.A. over the next several years.