DTLA Office Vacancy Rate Climbs

The office vacancy rate in Downtown Los Angeles increased in the third quarter, but the stat was an anomaly among several other strong numbers, including 109,245 square feet of net absorption. Vacancy, however, increased 5.3% to 17.9%. Still, Nick Griffin of the DCBID says that the market has healthy fundamentals and continues to see strong demand.

“The story in Downtown Los Angeles is really the diversification of the tenant base and the industry base,” Griffin, executive director of the DCBID, tells GlobeSt.com. “It was once traditional office tenants of finance and legal, and it is now really diversified with 40% of the newly leased space in the last year has been non-traditional tenants, like media, design, technology, architecture and fashion. These are all growth sectors with significant upside. They are also industries that tend to like to cluster, both within themselves and there is a cross-sector attraction. As each one of the sectors grows, they are making Downtown more desirable for the others. That is a trend that you will really see continuing.”

In addressing the increased vacancy rate, Griffin pointed out the other strong stats from the month, illustrating the strength of the overall office story. “Just looking at the numbers, we had net absorption in quarter three, and that was the eighth consecutive quarter of absorption space,” he says. “Rental rates also continued to edge up, reaching a new high of $3.88 per square foot. The fundamentals there are very strong, and I think there is a real confidence in the office market. It is just a matter of time to market to non-traditional tenants and to build out spaces that accommodate those tenants.”

In addition, the strong activity in the office market—the sector continues to see record deliveries and strong absorption—is a big driver of office activity. “The growth of the residential market is underpinning the growth and the appeal of the office market,” says Griffin. “The people moving down here are educated, young professionals for the most part. Those are a very strong talent pool for the types of companies that are moving here, and there is a real synergy between those markets.”

Next year, Griffin expects a continuation of this current story, which is really about long-term growth. He even expects a few exciting office announcements. “We are hearing a lot about large tenants kicking the tires in the central business district, so I wouldn’t be surprised to see some big leases in 2020,” he says.