LOS ANGELES-The core consumers of L.A. office space–banks, law firms and the professional/business services sector–have remained cautious and focused on cutting costs, according to the Studley Office Market and Spacedata Report. That's caused certain submarkets, particularly downtown and Century City, to have “a great deal” of excess space.

As such, the report says, L.A. is still lagging most major metro areas. Among the top 20 US metros, the region has the third-lowest office-using recovery rate. As of May, it had regained only 50.5% of the office-using jobs lost in the downturn, far less than the US recovery rate of 87.3%. Other major metros, such as Chicago and Atlanta, which also were lagging national trends a year ago, have since registered a burst of hiring and their recovery rates have pulled well ahead of the rate in Los Angeles.

Studley says most L.A. tenants, particularly creditworthy tenants willing to commit to long-term leases, can still negotiate very favorable terms while upgrading the quality of their space. The market has seen both a pullback in concessions and rental rate growth, each tied to tightening conditions in select areas like Santa Monica. Some landlords are increasing face rents despite tepid market conditions in preparation for a building sale.

While the media, entertainment and tech sectors have been active and expanding due to strong domestic and global demand for their products, the financial, legal and real estate sectors are still restructuring. Some major companies in the L.A. market, including Wells Fargo, KPMG and AIG, are in the throes of national or global consolidation campaigns.

But the L.A. market has yet to see a resurgence of regional and local banks rushing in to capture market share, Studley says. L.A. has also failed to see an influx of national companies electing to set up or expand operations. Instead, its tenant base is slowly eroding because of a net loss of businesses to such areas as Colorado and Texas that offer lower state taxes and extensive incentives.

The report says the downtown area accounted for the top three leases of the second quarter, but in all cases, the tenants reduced their overall occupancy. Thus, subpar leasing and elevated availability rates have caused overall rents to stagnate. Average class-A asking rent slipped to below $30, Studley claims.

The bright light is that foreign funds are coming from outside the market, looking for inflation hedges. In one notable development, the government of Kuwait paid $10.4 million ($1,150 per square foot) for 130 W. El Camino Dr. in Beverly Hills. The two-story building was vacant when sold.

As previously reported by GlobeSt.com, some analysts are questioning whether traditional office space is in a permanent downturn.