The report finds that the market has softened as negative net absorption continues, along with the completion of new space. As a result, the market has shifted from a very tight landlord's market from 12 months ago to a tenant's market today.
Effective rental rates have dropped substantially, according to the survey. The report goes on to predict that over the next 12 months, a large amount of space will enter the market as a result of construction completions.
Under normal economic conditions, the amount of new space coming online would be roughly equal to growth in demand. However, given the current weakness in the economy, it appears that growth in supply will significantly exceed growth in demand, and market conditions will continue to soften for the next six to nine months.
In contrast to this poor forecast, the report goes on to see positive trends for the area in the long term. There is a very high concentration of high-profit firms, including those in the entertainment, professionalservices, finances and computer programming sectors. The area is also in the midst of a highly skilled labor force and some of the most prominent residential neighborhoods in the U.S. Construction starts are down, which will enable a quick recovery once the current construction boom is completed and the economy recovers. That turnaround is predicted for fourth quarter 2002.
Leasing activity was moderate for the West Los Angeles area during the fourth quarter 2001, with 643,000 sf. This is roughly inline for the quarterly average for the last 12 months, and the third quarter 2001. However, activity in 2001 is down very sharply from activity in 2000, which ran at a super-heated pace of 1.6 msf per quarter.Despite moderate leasing activity, there was a substantial negative net absorption of negative 648,000 sf, marking the fourth consecutive quarter of negative net absorption, according to Colliers Seeley. Net absorption in West Los Angeles in 2001 totaled negative 1.65 msf. This contrasts very sharply with 2000, when net absorption in the area was a near-record positive 2.1 msf, the report went on to say.
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