LOS ANGELES—The office sector in Los Angeles is hitting its stride, according to the 1Q15 office report from Cushman & Wakefield. The report shows that leasing activity in the L.A submarket as a whole is up 10.8% year-over-year, vacancy is down 2% and office rental rates are up 5.4%. Thanks to strong economic fundamentals, including a declining unemployment rate that came down nearly a percentage point since the same time last year, the report predicts a phenomenal year with growth over 2014.

“We're in a really good place,” Petra Durnin, managing director of research at Cushman & Wakefield, tells GlobeSt.com. “Even though Los Angeles office markets perform very differently across the office landscape, the fabric that makes up Los Angeles is not as hard boundaried as it used to be. Thanks to the creative and tech industries, the lines are becoming blurred, and we have nano markets popping up.”

Los Angeles West is leading the market with a 12.3% vacancy rate, which has been steadily declining for six straight quarters and is down 2.1% from the same time last year. Asking rents in the market have improved as well, climbing to $3.71 per square foot. Century City led the submarket in the quarter with 154,274 square feet of leasing activity. The Tri-Cities, San Gabriel Valley and L.A. North submarkets also performed well, trailing just behind L.A. West. The L.A. North vacancy rate came in second at 12.4%, which was down 60 basis points over the previous quarter and 260 basis points over the previous year. Rental rates in the market average $2.42 per square foot. The San Gabriel Valley market vacancy rate dropped to 12.9% with occupancy gains of 86,949 square feet, more than triple the absorption that the market saw in 1Q14. Lastly, the Tri-Cities market saw vacancy rates drop 3.1% from last year to 14.9%, and with growing demand, rental rates increased to $2.79 per square foot, a $0.12 increase.

The more troubled markets include L.A. South and the Central Business District. L.A. South has a 23% vacancy rate, which inched up slightly from the previous quarter by .3%. According to the report, the increasing vacancy was largely from the El Segundo market, which had 93,255 square feet of occupancy losses during the quarter. Additionally, the El Segundo market is seeing ample development, including the recently completed El Segundo Gateway Campus and a three-story creative office projectbetween Embarcadero Capital Partners and Westbrook. Although vacancy dropped in the market, leasing activity was up 32.8% year over year with 553,251 square feet leased during the quarter. In the CBD, the vacancy rate is 20.8%, with nominal occupancy gains of 6,540 square feet during the quarter. Leasing activity in this market was also up—by 51.7% year over year—however, Durnin attributes this to a short-term lease by the city for 125,591 square feet. Still, she isn't concerned about these markets. “There are always going to be troubled submarkets,” she explains. “Even with the CBD that has a 20% vacancy, I don't think it is a huge concern. We have seen much higher vacancy in the CBD, and we don't have the over-built situation that we had in the 90s. The rest of downtown is booming, and eventually, that will help the CBD market.”

In terms of job growth, educational and health services are leading the job gains, adding a total of 31,000 jobs to the market, while professional and business services, informational industries and finance industries added more than 15,000 jobs to the market. As a result, the unemployment rate at the end of the quarter was 7.8%. With this declining unemployment rate and positive market fundamentals, Durnin expects the growth to continue. “I think it is blue skies ahead for L.A. in general. We are coming out of such a difficult period and the surge of growth in these micro and nano markets is buoying the growth in the troubled markets that were there before,” she says. “Plus, downsizing is slowing down and leasing activity is way up, which is going to mean positive absorption throughout the rest of this year. We have moved forward on all of our market fundamentals, and I think we'll surpass 2014's occupancy gains. Right now, everything is moving forward, and that is good. We haven't been in this place in a really long time.”