Office markets in LA County, Inland Empire are gaining momentum



Southern California’s office markets are gaining strength, according to a pair of new reports from Marcus & Millichap.

Builders in the Los Angeles metro area will complete 2.5 million square feet of office space this year, one of the reports says. That’s the highest yearly total since 2009.

Most of the new development is targeting the downtown Los Angeles market.

Last year 1.6 million square feet of office space was completed.

Office vacancy rates are also on the decline, and that’s always good news. That means the properties are being snapped up by businesses that are expanding and have money to spend.

For those who don’t remember, there wasn’t a lot of that going on in the years immediately following the Great Recession. So this is what we want to hear.

The report says the metro vacancy rate for office space will decline 50 basis points to 14.8 percent this year as nearly 4 million square feet of office space is absorbed. That’s a heck of a lot better than the previous four quarters when the vacancy rate rose 20 basis points as net absorption lagged behind the supply of available properties.

The lower vacancy rate has boosted the average asking rent by 5.5 percent to $34.90 per square foot. That matches the prior year’s growth.

Another 4 million-plus square feet of office space is in the planning pipeline and those projects are expected to be completed next year.

The largest one that’s expected to be finished this year will be the Los Angeles Federal Courthouse at 107 S. Broadway in downtown L.A. The 600,000-square-foot building is entirely leased and three additional properties that are under construction will add another 200,000 square feet of space.

Declining vacancy rates have spurred developers to expand their project pipeline. The report notes that most of the activity is concentrated in the region’s strongest submarkets, including the mid-Wilshire area in downtown L.A. and a cluster of submarkets that make up the Westside cities and the South Bay where technology tenants have emerged as the primary demand driver for new space.

Builders in Riverside-San Bernardino metro area are also ramping up.

After completing more than 221,000 square feet of office space in 2015, they’re on track to deliver nearly 509,000 square feet of office space this year, according to the other Marcus & Millichap report. East San Bernardino and south Riverside will see most of the activity.

The two-county region isn’t faring as well with vacancy rates, however. Last year, 966,000 square feet of available office space was absorbed, which pushed the vacancy rate down 140 basis points to 14.4 percent. But this year vacancies will tick up 60 basis points as deliveries outpace net absorption, ending the year with a vacancy rate of 15 percent.

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Office rents are rising in the Inland Empire as well. During the year ending in June, the average asking rent rose 2.6 percent to $20.24 per square foot.

The highest rent during the last four quarters could be found in the Corona area — around $24 per square foot. The more affordable rents were in the northern and eastern submarkets of San Bernardino, ranging between $17 and $18 per square foot.

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