The office vacancy rate in Los Angeles increased in the first quarter. According to a market report from Savills, the office vacancy rate bumped up 50 basis points in the first quarter. While the increase is nominal, the increase shows the impact of new office product coming online. By comparison, class-A and new construction product continues to lease quickly, and the vacancy rate for that segment of the market decreased by 110 basis points.
“The delivery of additional inventory is driving the vacancy rate up,” Matt Brainard, senior managing director at Savills, tells GlobeSt.com. “This includes both speculative office development and the repositioning of older assets. The new product tends to lease more quickly than the second-generation space.”
Value-add and redeveloped office space makes up a majority of the new office product coming to the market. This space in incredibly popular, and major renovation projects are popping up throughout the city, like the Worthe Real Estate Group's repositioning of Burbank Studios for creative office; Merlone Geier Partners and Goldstein Planting Investments' North Hollywood West; and Hudson Pacific and Macerich's plan to reposition the 500K-square-foot Westside Pavilion shopping center into a creative office campus, which Google has pre-leased. “Repurposing older struggling retail properties to creative office has become a prominent and highly successful trend,” says Brainard.
Creative companies are driving the leasing activity for repurposed product and class-A space. For the latter, the vacancy rate actually decreased to 17.9%, compared to the 19.1% overall vacancy rate. “These companies are all creating content and hiring new talent at a significant pace,” says Brainard. “In addition to office space, these tenants require large blocks of space for studio and production usages.”
While the vacancy rate has ticked up for office product in response to new supply, Brainard expects leasing activity to remain steady through 2019. Creative and expanding tech users will likely remain key to the market growth. “These users have demonstrated that they are committed to Los Angeles as a content creation capital,” he says. “So, we can expect to see them expand their footprints, which will inevitably expand the ecosystem of other companies that work closely with and support the content creators.”
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Kelsi Maree Borland
