West L.A. is a pillar of the Greater L.A. office market, but this year, activity has slowed. In the last four quarters, leasing activity has slowed in key L.A. submarkets, including the Westside, and rents have stabilized. On the Westside, asking rents fell 4% quarter over quarter, and 5% for class-A space specifically, according to the third-quarter report from Savills Studley. Year-over-year, rates are flat. Alternative Westside markets like Play Vista are no longer a discount, causing tenants to leave and find alternatives. To find out why activity is slowing and how other submarkets in L.A. are being impacted, we sat down for an interview with Jeff Cowan, senior managing director at Savills Studley.
GlobeSt.com: What has slowed leasing activity in the West L.A. office market?
Jeff Cowan: Several factors including rising rental rates (coupled with large annual increases); rising cost of construction requiring most tenants to come out-of-pocket for the build-out; and fear of committing to a long-term lease when the economy may slow down and rents could decline.
GlobeSt.com: West L.A. has been the darling of L.A. office, and has driven growth in adjacent markets. How have other submarkets been impacted?
Cowan: The most expensive submarkets have been Beverly Hills, Santa Monica and West Hollywood. Other submarkets have become more expensive as tech and media companies flocked there, most notably Hollywood, Culver City and Playa Vista. Now that costs in these areas have increased, there's been some slowdown here as well.
GlobeSt.com: Should this slow down be concerning for landlords and office investors?
Cowan: Yes, rental rates have risen to all-time highs in many of the submarkets. Los Angeles' tenant base is primarily made up of service firms who cannot afford or do not want to pay the new higher asking rates. A lot of tenants, whose current leases were signed at a much lower rate, may be forced to move to lesser expensive submarkets upon lease expiration.
GlobeSt.com: Investment activity has also slowed. Is the result of a decrease in tenant demand or a lack of opportunities?
Cowan: It is partially due to the drop off in tenant demand. Additionally, some foreign investors have pulled back because they are questioning the long-term projected rents of many of the buildings for sale.
GlobeSt.com: What is your office market outlook in L.A. for the next 12 months?
Cowan: I expect that the market rents will still be high, but there will be even more signs of the economy slowing down which will cause further hesitation on the part of tenants looking for a long-term leases.
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Kelsi Maree Borland
