LOS ANGELES-A just-released national market report from Jones Lang LaSalle indicates the office market here is still struggling. But there are some encouraging, though quiet, recovery signs.
The JLL spring United States Skyline Review report, subtitled “2013: The Year the Recovery Takes Hold Across All Skyline Markets,” covers Los Angeles as one of 34 city centers where Jones Lang LaSalle tracks Class A and Trophy office properties. “These are the segments of the markets that always lead the rest of the office sector in the trends of leasing, rent and ultimately investment growth,” said a report statement from John Sikaitis, Senior VP of Research at the firm.
The Los Angeles segment takes particular aim at the Century City submarket, reporting large blocks of vacant space. Downtown, there is a continuing reduction in occupancy from existing tenants, and there are few tenants touring the market with sizeable requirements, the report states.
Overall market direct vacancy was 17.8%, the report states, while the direct asking lease rate change was up 3.8%, an increase that was measured over the previous 24 months.
The big issue in downtown Los Angeles, the JLL report says, is potential owner fragmentation. The JLL report indicates such fragmentation will induce more competition for tenants in 2013 and 2014, as MPG Office Trust, the largest owner of downtown Skyline buildings, has assets go into receivership and its market share erodes. “As the portfolio fractures, new owners have shown more pricing flexibility and have been willing and able to increase financial concessions,” the report states.
Two executives from JLL tell GlobeSt.com they remain upbeat on Los Angeles market prospects, citing quiet interest from potential new tenants that may fuel growth.
John McAniff, JLL Managing Director, runs a leasing team that handles 3.5 million square feet of office space and four different towers. He cites new tenants coming into the downtown market, noting Hispanic, Chinese and Korean companies that are expanding as a potential new strength for downtown.
“We're seeing new development for the first time in 20 years,” McAniff tells GlobeSt.com. “We're seeing a lot of activity. It hasn't gone to transaction yet, but it will. There's a great deal of activity below the surface. What happens is it's a long transaction cycle. Tours today will result in some healthy, positive absorption through the third and fourth quarter of this year.”
Anthony Gatti, another JLL Managing Director, says the Century City outlook is “a great long-term play,” and notes that rental rates are not being lowered despite the vacancies. “All we know is that on the front lines the demand is really positive,” he says. Gatti predicts new law firm tenants will be coming into the submarket.
The Jones Lang LaSalle outlook mirrors the cautious optimism of recent market reports from other firms. CBRE Global Research and Consulting, in its report titled “Greater Los Angeles Office Marketview,” issued in Q4 of 2012, which touted a Los Angeles 17.4% percent vacancy rate and asking lease rate growth of 4.6%.
The Cushman & Wakefield Marketbeat Office Snapshot (also Q4 2012) was upbeat as well, indicating “The turning point has arrived.” It noted a vacancy rate of 18.4%.
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