One area where investors are weary is the sublease market. Recent reports show that many companies are right sizing their space, and creating a robust secondary market. “We are seeing an increase in sublease space,” says Tipton. “When you have that kind of secondary market, there is a downward pressure on rents.”

Developers and investors have a strong outlook for the Los Angeles office market—but we can't say the same about other major California markets. The semi-annual joint forecast between UCLA Anderson Forecast and Allen Matkins, which GlobeSt.com has obtained exclusively, is called The Turn of the Cycle and shows a clear change in sentiment for the three-year outlook. The survey asks commercial real estate professionals their forecast for six California office markets, and developer sentiment was negative in all six markets except Los Angeles and San Francisco.

“If you look at the office space chart, the northern markets are in their third survey being negative,” John Tipton, operating partner at Allen Matkins, tells GlobeSt.com. “The reason for that, really all along, is that San Francisco led out of the recession. It was the bright shining star, and it was a lot brighter and a lot earlier than other places in the state. Down South, if you look at Orange County and San Diego, there has been a progressive notching down and for the first time, it has gone down below 50%. Los Angeles, on the other hand, has not only stayed positive, but it has notched up a little bit with people more optimistic than it was six months ago. People in the survey believe that even though there is a lot of construction going on in Los Angeles today, it is not sufficient to meet the demand three year out.”

Los Angeles' office industries have become more diverse, especially with the growth of Silicon Beach and tech industries. This growth is serving as a driver for the L.A. market, while job growth is slowing elsewhere. “I don't think that L.A.'s success is causing struggle in other markets,” adds Tipton. “I think it is more independent than that. However, in Los Angeles, the demand from tech and the entertainment industry is very strong. L.A's strengths are shinning right now. When you look at some of the weaknesses in San Francisco, there is a slowdown of tech hiring and you have a really strong base there. At some point, your success catches up with you for a little bit. When you think about the employment driving areas, L.A. and San Francisco are not surprisingly the biggest drivers in the state.”

Creative office is clearly a leader in the market, with better rental increases and absorption. While the survey didn't separate the two markets, Tipton says that sentiment was strong for office in general, and offered the activity in the transaction market as an example. “I think that we have all been surprised at the strength of the transactional market right now,” he says. “The amount of real estate that I am seeing trading hands right now is really very strong, and it is not just about the creative market, but there is a lot of activity overall. I think that is why you are seeing such an uptick in Los Angeles.”

One area where investors are weary is the sublease market. Recent reports show that many companies are right sizing their space, and creating a robust secondary market. “We are seeing an increase in sublease space,” says Tipton. “When you have that kind of secondary market, there is a downward pressure on rents.”