Q3 2012 Los Angeles Office Outlook.pdf

8/10/2019 Q3 2012 Los Angeles Office Outlook.pdf

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Although Los Angeles has lagged behind the rest of the nation during therecovery, plagued by one of the highest unemployment rates of any metropolitan

area in the country, it has remained resilient. Robust job growth in technology,media and entertainment has been crucial to high demand for creative officeproduct in submarkets that can accommodate this dynamic and evolving workspace. This in turn has driven rent growth to levels not seen in many othermetropolitan areas. It has also fueled speculative creative office construction tolevels not seen in many other metros.

ECONOMY

Stuck in low gear

With unemployment in Los Angeles currently at 10.2%, the rate has now beenin double digits for forty-five consecutive months, and is 2.4 percentage pointshigher than the national rate of 7.8%. Major metro areas around the countryhave been reporting single-digit unemployment rates for the past year. Thislaggard performance in job growth has limited the office market recoveryin Los Angeles relative to other competitive markets. Due, however, to theburgeoning technology, media and entertainment growth over the past year, theunemployment rate has dropped precipitously 2.5 percentage points.

SUPPLY AND DEVELOPMENT

The hot ticket: adaptive reuse for creative office

A number of creative office projects have hit the development pipeline asthe demand has increased on the Westside. During third quarter, 9.5% of theexisting creative office base in Silicon Beach (Santa Monica and Venice) wasproposed or under construction. That compares to 18.3% in Playa Vista and 33%in Culver City. One of the largest creative office projects currently underway is

in the Marina Del Rey/Playa Vista submarket area. The Reserve is a 368,000-sq.-ft. creative office adaptive reuse project of a former post office distributioncenter. The twenty-nine creative office projects currently underway or plannedthroughout the metro make up 2.4 million sq. ft. and are primarily located in theWestside. Eight of the twenty-nine projects are large-scale campuses of over ahundred thousand square feet each.

Los AngelesOffice2012 Q3

OUTLOOK

Los Angeles office market recovery plods alongDemand from tech, media, and entertainment buoy metro

VACANCY

LEASE RATES

UNDER CONSTRUCTION

AVERAGE OFFIC E SALE PRICE

JOB GROWTH

ABSORPTION

08 09 10 11 1207

08 09 10 11 1207

08 09 10 11 1207

08 09 10 11 1207

08 09 10 11 1207

08 09 10 11 1207

-40,622jobslost in the third

quarter

$278.06 PSF14% increase

from a year ago

1,144,885 SFCreative office projects

part of pipeline

$30.65 PSFAsking rate decreased

in third quarter

268,204 SFPositive net

absorption

18.6%Slight decrease from

the second quarter


2/16

2 OUTLOOKLOS ANGELES OFFICE 2012 Q3


OUTLOOK

DEMAND

Demand strongest in areas reacting quickly to creative need

In 2012, Los Angeles office market has seen the largest positive net absorptionyear-to-date in the past four years at 850,144 square feet. Since 2007, demandhas been flat to negative. All the technology, media and entertainment leasesignings of last year are taking occupancy this year, causing strong positive netabsorption. The office areas within the metro that cater to, and are capable of,being repositioned to support tech tenants are recovering the quickest. TheWest Los Angeles and the Tri-Cities markets both posted the largest gains in netabsorption year-to-date with 369,274 sq. ft. and 197,136 sq. ft. respectively.

VAC ANCY

Stubbornly high metro-wide, but greatest decrease has been in areas withtech presence

Vacancy for Los Angeles decreased in the third quarter by a tenth of a percent, to18.6%. Robust demand in the West Los Angeles and Tri-Cities office markets hascaused vacancy to drop 0.4 and 1.1 percentage points respectively in the thirdquarter. On the other end of the spectrum, vacancy in downtown Los Angelesrose 0.1 percentage points for a second consecutive quarter, as the continuedimpact of downsized renewals has continued to cause an increase in vacancy.Even with vacancy across the Los Angeles metro slightly down for third quarter,the Los Angeles market is still over three percentage points above its ten-yearhistorical average.

RENTAL RATES

Silicon Beach rent growth amongst strongest in the country

Rent growth for creative office is greatly outperforming its traditional, institutionaloffice counterparts across the metro. The year-over-year rent growth in SiliconBeach for creative office in third quarter was 14.4%, surpassing the office rentgrowth of 10.8% year-over-year for traditional office space in the same area.Creative office rent growth vastly outpaced the overall Los Angeles metro non-creative office rent growth year-over-year of 0.9%. This double-digit rent growthis atypical of even other gateway metros with significant creative office inventory,and is due to the world-class niche technology, media and entertainmentinterplay that exists only in Los Angeles.

METRO LOS ANGELES OFFICE MARKET INDICATORS

PROPERTY CLASS INVENTORY

UNDER

CONSTRUCTION

Q3 NET

ABSORPTION

YT D NE T

ABSORPTION

DIRECT

VAC AN CY

SUBLEASE

SPACE

TOTAL

VAC AN CY

AVERAGE

RATE PSF

Class A 62,548,275 414,994 127,962 353,676 16.9% 0.9% 17.8% $37.64

Class B 100,392,595 729,891 140,242 496,468 18.4% 0.7% 19.1% $27.47

Metro LA Total 162,940,870 1,144,885 268,204 850,144 17.8% 0.8% 18.6% $30.65

CAP RATES

METRO LOS ANGELESUNITED STATES

METRO LOS ANGELES

UNITED STATES

PAYROLL JOB GROWTH

UNITED STATES

METRO LOS ANGELES

8%

4%

10%

6%

10 121105 06 07 08 090403

10 121105 06 07 08 090403

10 121105 06 07 08 090403

5%

0%

15%

10%

-4%

-2%

0%

-6%

4%

2%


3/16

OUTLOOKLOS ANGELES OFFICE 2012 Q3 3

INVESTMENT MARKET

LA is a bargain when compared to

other major metros nationally

Pricing on average in Los Angelesis well below that of other largemetros. The most recent downtownLos Angeles sale of a Class A trophytower was a sale at $339 per sq. ft.,which is far below the $600-$700plus per sq. ft. range being attainedin Seattle and San Francisco. Thisdifferential will continue to drive,

in the near term, an increase inlocal pricing. As pricing in the Westregions other gateway metros aresome of the highest in the nation(San Franciscos pricing now rivalsNew York Citys), Los Angeles isdriven up despite of local economicfundamentals.

OUTLOOK

Cautiously optimistic

Los Angeles is a resilient market; ithas weathered rough patches beforeand has bounced back. Los Angelesis home to the entertainmentindustry, and its collaboration withthe tech industry to produce originaldigital content for the internet willbe its spark plug. This specializedfocus on the creation of originalprogramming content for the internetcannot be duplicated anywhere else,and is still in its infancy. From thisspecialty, creative office has beenspawned and has become a boon

to the local economy, providingancillary services from architecturaldesign support for the repositioningof existing buildings to constructionwork for new product to meetdemand. n

METRO LOS ANGELES NET ABSORPTION AND VACANCY

NET ABSORPTION MILLION SF VACANCY

03 04 05 06 07 08 09 10 11 12-3

-1

-2

0

1

3

2

10%

0%

30%

20%

METRO LOS ANGELES AVERAGE ASKING RENTAL RATES

$20

$40

$30

$50

CLASS A CLASS B

03 04 05 06 07 08 09 10 11 12

COMPLETED UNDER CONSTRUCTION AVAILABLEUNDER CONSTRUCTION PRELEASED

0

0.5

1.0

1.5

2.0

2.5

METRO LOS ANGELES DEVELOPMENT PIPELINE MILLION SF

03 04 05 06 07 08 09 10 11 12


4/16


5/16


Metro Los Angeles Average

Downtown LA Average

VAC ANCY BY SUBM ARKET

DOWNTOWN LOS ANGELES OFFICE MARKET INDICATORS

SUBMARKET INVENTORY

UNDER

CONSTRUCTION

Q3 NET

ABSORPTION

YT D NE T

ABSORPTION

DIRECT

VAC AN CY

SUBLEASE

SPACE

TOTAL

VAC AN CY

AVERAGE

RATE PSF

Bunker Hill 7,040,089 - -31,233 -163,887 13.4% 0.4% 13.8% $38.63

Financial District 20,384,860 150,986 26,485 -9,858 19.6% 0.4% 20.0% $33.28

South Park 1,391,700 78,500 1,005 15,916 8.7% 1.0% 9.8% $28.74

Greater Downtown 2,530,184 - -20,499 -55,945 14.5% 0.3% 14.9% $27.07

Downtown LA Total 31,346,833 229,486 -24,242 -213,774 17.3% 0.4% 17.8% $34.73

Metro LA Total 162,940,870 1,144,885 268,204 850,144 17.8% 0.8% 18.6% $30.65

RENTAL RATES BY SUBMARKET

Bunker Hill

Financial District

South Park

Greater Downtown

DOWNTOWN LOS ANGELES MARKET AVERAGE ASKING RENTAL RATES

$20

$40

$30

$50

CLASS A CLASS B

03 04 05 06 07 08 09 10 11 12

DOWNTOWN LOS ANGELES MARKET NET ABSORPTION AND VACANCY

-0.50

-0.25

0

0.25

0.50

0.75

1.00

10%

20%

0%

30%


03 04 05 06 07 08 09 10 11 12


Downtown LA Average

Bunker Hill

Financial District

South Park

Greater Downtown

17.8%

18.6%

13.8%

14.9%

20.0%

9.8%

$34.73

$30.65

$38.63

$33.28

$ 28.74

$27.07


6/16



OUTLOOK

Mid-Wilshire continues to hemorrhage, Miracle Mile another storySeven consecutive quarters of negative net absorption as vacancy upticks

110

101

ARLINGTONA

VE

HOOVER

ST

ALV

ARADO

ST

LA

BREA

AVE

FAIRFAX

AVE

WILSHIR E BLVD

PICOBLVD

JEFFERSONBLVD

EXPOSITIONBLVD

MIRACLE

MILE

MIRACLE

MILE

PARK

MILE

PARK

MILE WILSHIRE

CENTER

WILSHIRE

CENTER

Aside from the Miracle Milesubmarket, Mid-Wilshire has notconnected with the expandingdemand from technology, media, andentertainment, and thus continuesto see an increase in negative netabsorption. The vacancy for thesubmarkets of Park Mile and Wilshire

Center combined is approximately25%, which is 6.4 percentage pointshigher than the overall Los Angelesmetro. Mid-Wilshire has failed togain decent traction in luring tenantsfrom higher priced West LA andDowntown, where average askingrental rents are 44% and 35% higherrespectively than in Mid-Wilshire.

Vacancy in the Mid-Wilshire marketincreased 0.7 percentage points to21.0% from the second quarter. This isthe highest vacancy rate for the Mid-Wilshire market going back elevenyears.

In the high-demand Miracle Milesubmarket, Wilshire Courtyard at5700-5730 Wilshire Blvd. is undercontract and slated to close by yearend at a reported price of $423million, or $425 on a per sq. ft. basis.

Leasing activity in the Mid-Wilshire

market predominantly comes fromMiracle Mile, which caters to mediaand entertainment. MediaBrandssigned a renewal at 5700 Wilshirefor 88,000 sq. ft. and Caliber Mediasigned a new lease at 5670 WilshireBlvd. n

THIRD QUARTER LEASE ACTIVITY

TENANT PROPERTY SIZE (SF) TYPE

MediaBrands 5700 Wilshire Blvd 88,000 Class A Renewal

Caliber Media 5670 Wilshire Blvd 6,781 New Class B Lease

Masoret Yehudit 6380 Wilshire Blvd 2,881 New Class A Lease

THIRD QUARTER SALE ACTIVITY

PROPERTY SIZE (SF) SALE PRICE PSF BUYER

No recent sale comparables


7/16



Mid-Wilshire Average


Mid-Wilshire Average

Miracle Mile

Park Mile

Wilshire Center


MID-WILSHIRE OFFICE MARKET INDICATORS

SUBMARKET INVENTORY

UNDER

CONSTRUCTION

Q3 NET

ABSORPTION

YT D NE T

ABSORPTION

DIRECT

VAC AN CY

SUBLEASE

SPACE

TOTAL

VAC AN CY

AVERAGE

RATE PSF

Miracle Mile 4,606,095 - 42,123 67,772 11.6% 1.2% 12.8% $30.54

Park Mile 787,762 - -58,408 -33,503 28.8% 7.8% 36.6% $21.24

Wilshire Center 8,139,073 - -75,182 -152,443 24.0% 0.1% 24.2% $19.86

Mid-Wilshire Total 13,532,930 - -91,467 -118,174 20.1% 0.9% 21.0% $22.61

LA Metro Total 162,940,870 1,144,885 268,204 850,144 17.8% 0.8% 18.6% $30.65


Miracle Mile

Park Mile

Wilshire Center

MID-WILSHIRE MARKET AVERAGE ASKING RENTAL RATES

$10

$40

$30

$20

$50

CLASS A CLASS B

03 04 05 06 07 08 09 10 11 12

MID-WILSHIRE MARKET NET ABSORPTION AND VACANCY

-0.50

-0.25

0

0.25

0.50

15%

5%

25%


03 04 05 06 07 08 09 10 11 12

21.0%

18.6%

12.8%

36.6%

24.2%

$22.61

$30.65

$30.54

$21.24

$19.86


8/16



OUTLOOK

Negative net absorption for Santa Monica and HollywoodRental rates, however, are on the rise

In West LA, tenants not in SiliconBeach (Santa Monica and Venice),or on the Lower Westside (MarinaDel Rey, Playa Vista, Culver City),might as well be in another marketentirely. Double-digit year-over-year rent growth for creative officewithin Silicon Beach and the Lower

Westside ranks higher than manyother tech office nodes nationally.

The West LA market dynamics arerapidly changing and evolving.Even recently built institutionaloffice product is quickly losingits competitive edge due to theinfluence and contagious effectsof creative office trends. Existinginstitutional buildings like Horizonat Playa Vista, which was built in2010 and has not gained muchlease-up traction since construction,is reportedly undergoing creativeinterior and exterior improvementsto coincide with current demand.Additionally, The Water Garden inSanta Monica has been reported tobe planning to refurbish space to bein line with current tenant needs.

Last years adaptive reuse movementhas also evolved. During the WestLA markets resurgence of tech,

media, and entertainment, smallernon-institutional one-off productionand sound studio projects initiallyfilled the pipeline. Currently, thenumber of larger-scaled creativeoffice projects planned, proposed,and under construction indicate theevolution of technology, media andentertainment firms needs for largerfacilities. n

90

134

110

105

101

101

WESTWOODWESTWOOD

BRENTWOODBRENTWOOD

PACIFICPALISADES/

MALIBU/SANTA MONICA

PACIFICPALISADES/

MALIBU/SANTA MONICA

BEVERLY

HILLS

BEVERLY

HILLS

WEST

HOLLYWOOD

WEST

HOLLYWOOD

HOLLYWOODHOLLYWOOD

WEST

LOS ANGELES

WEST

LOS ANGELES

CULVER CITYCULVERCITY

MARINA

DEL RAY/

PLAYA VISTA

MARINA

DEL RAY/

PLAYA VISTA

OLYMPIC

CORRIDOR

OLYMPIC

CORRIDOR

CENTURY

CITY

CENTURY

CITY

THIRD QUARTER SALE ACTIVITY SELECT TRANSACTIONS


12333 W Olympic Blvd,1901-1933 S Bundy Dr

233,600 $89,000,000 $381.00 Hudson Pacific Properties, Inc

6255 W Sunset Blvd 320,905 $76,000,000 $236.83 Kilroy Realty Corp

6121 W Sunset Blvd 128,869 $65,000,000 $504.39 Kilroy Realty Corp

8899 Beverly Blvd 78,980 $39,000,000 $493.80 Townscape Partners/Angelo, Gordon & Co

THIRD QUARTER LEASE ACTIVITY SELECT TRANSACTIONS


Westfield Century Plaza Towers 81,124 New Class A Lease

72andSunny 12145 & 12155 W Bluff Creek Dr 58,000 New Class B Lease

Demand Media 1655 26th St 53,512 New Class A Lease

Given 5860 Uplander Way 25,199 New Class B Lease

The Visionaire Group 5340 Alla Rd 17,644 New Class B Lease


9/16


WEST LOS ANGELES OFFICE MARKET INDICATORS

SUBMARKET INVENTORY

UNDER

CONSTRUCTION

Q3 NET

ABSORPTION

YT D NE T

ABSORPTION

DIRECT

VAC AN CY

SUBLEASE

SPACE

TOTAL

VAC AN CY

AVERAGE

RATE PSF

Santa Monica/Palisades/Malibu 7,345,527 - -87,989 -180,299 11.8% 0.4% 12.1% $48.61

Westwood 5,012,689 - 45,513 69,799 13.6% 0.8% 14.4% $38.50

Olympic Corridor 2,497,328 - 8,810 58,526 7.5% 0.7% 8.1% $35.72Brentwood 2,666,603 - 47,214 10,215 17.2% 0.7% 17.8% $38.55

Century City 10,397,917 - 66,701 131,689 14.1% 1.7% 15.7% $48.45

Beverly Hills 5,029,930 - 55,696 79,338 13.7% 1.0% 14.7% $48.22

West Hollywood 1,512,343 414,994 20,855 52,864 10.3% 0.1% 10.4% $39.70

Hollywood 1,989,616 - -13,044 56,735 9.8% 1.9% 11.7% $34.80

West Los Angeles 287,135 - -33 622 15.8% 0.0% 15.8% $25.65

Marina Del Rey/Playa Vista 4,036,413 380,000 31,877 125,641 27.9% 9.3% 37.2% $34.06

Culver City 3,017,337 - 4,405 -35,856 14.6% 1.8% 16.5% $30.76

West LA Market Total 43,792,838 915,399 180,005 369,274 14.4% 1.8% 16.2% $40.50

Metro LA Total 162,940,870 1,144,885 268,204 850,144 17.8% 0.8% 18.6% $30.65


Santa Monica/Palisades/Malibu

Westwood

Olympic Corridor

West Los Angeles Average


Brentwood

Century City

Beverly Hills

West Hollywood

HollywoodWest Los Angeles

Marina Del Rey/Playa Vista

Culver City

RENTAL RATES BY SUBMARKETWEST LOS ANGELES MARKET AVERAGE ASKING RENTAL RATES

$20

$50

$40

$30

$60

CLASS A CLASS B

03 04 05 06 07 08 09 10 11 12

WEST LOS ANGELES MARKET NET ABSORPTION AND VACANCY


-1.5

-1.0

-0.5

0

0.5

1.0

1.5

10%

20%

0%

30%

03 04 05 06 07 08 09 10 11 12

Santa Monica/Palisades/Malibu

Westwood

Olympic Corridor

West Los Angeles Average


Brentwood

Century City

Beverly Hills

West Hollywood

Hollywood

West Los Angeles

Marina Del Rey/Playa Vista

Culver City

12.1%

8.1%

11.7%

10.4%

14.4%

16.2%

18.6%

17.8%

15.7%

14.7%

15.8%

37.2%

16.5%

$48.61

$38.50

$35.72

$40.50

$30.65

$38.55

$48.45

$48.22

$39.70

$34.80

$25.65

$34.06

$30.76


10/16



OUTLOOK

San Fernando Valley demand slowsMetrics appear to be flattening out, but solid investment activity persists

170

134

14

118 210

101

101

101

WOODLAND

HILLS/

WARNER

CENTER

WOODLAND

HILLS/

WARNER

CENTER ENCINO/

TARZANA

ENCINO/

TARZANA

SHERMAN

OAKS

SHERMAN

OAKS

WESTERN SFVWESTERN SFV

EASTERN SFVEASTERN SFV

NORTH

HOLLYWOOD

NORTH

HOLLYWOOD

STUDIO/

UNIVERSAL

CITIES

STUDIO/

UNIVERSAL

CITIES

Fundamentals still appear to bepushing along, albeit slower than atthe start of the year. Almost 300,000sq. ft. of positive net absorptionwas recorded in the first quarter,compared to 22,813 sq. ft. recordedabsorption for the second and thirdquarters combined. Smaller users are

still active in new leasing, while largertenants are comfortable renewing.

At 319,692 sq. ft., San FernandoValley is posting a positive year-to-date square net absorption.Demand in the Studio/UniversalCities submarket specifically sawa significant loss this quarter withnegative net absorption of 111,124square feet; however, year-to-dateStudio/Universal Cities is still positiveat 18,993 sq. ft. net absorption.

The overall average asking rental ratehas risen by 1% since the beginning ofthe year. The average Class A askingrental rate has remained flat sincethe the first quarter, while Class B hasrisen by 1%. A flight to quality in thesuburban office market is a function ofrental rate pricing.

The Valley has seen solid investmentactivity. 5900 N Sepulveda Blvd.

in Sherman Oaks sold in thethird quarter. The 76,110 sq. ft.building sold for $11.8 million, or$154 per square foot. In WarnerCenter, Farmers Plaza at 6301-6303Owensmouth Ave. is reportedly forsale and is expected to get $110million, or $211 per sq. ft. FarmersPlaza is fully leased; however, fiftypercent of its leases expire in 2015.n



5900 N Sepulveda Blvd 76,110 $11,753,500 $154.43 ESH Properties

THIRD QUARTER LEASE ACTIVITY


Hatch Mott MacDonald 10 Universal City Plz 9,449 New Class A Lease


11/16


SAN FERNANDO MARKET AVERAGE ASKING RENTAL RATES

$20

$35

$30

$25

$40

CLASS A CLASS B

03 04 05 06 07 08 09 10 11 12

SAN FERNANDO MARKET NET ABSORPTION AND VACANCY

-0.50

-0.25

0

0.25

0.50

0.75

1.00

20%

10%

0%

30%

NET ABSORPTION MILLION SF

03 04 05 06 07 08 09 10 11 12

VACANCY



SAN FERNANDO VALLEY OFFICE MARKET INDICATORS

SUBMARKET INVENTORY

UNDER

CONSTRUCTION

Q3 NET

ABSORPTION

YTD NET

ABSORPTION

DIRECT

VAC ANC Y

SUBLEASE

SPACE

TOTAL

VAC ANC Y

AVERAGE

RATE PSF

Western SFV 1,555,829 - - 64,042 46.3% 0.0% 46.3% $26.06

Eastern SFV 791,637 - 9,968 65,582 10.3% 0.0% 10.3% $25.55

Woodland Hills/Warner Center 6,518,696 - 4,796 28,172 17.8% 0.5% 18.3% $26.74

Encino/Tarzana 2,499,809 - 54,601 51,972 12.3% 0.4% 12.7% $28.52

Sherman Oaks 1,514,094 - 5,782 -10,945 7.6% 0.2% 7.8% $27.98

Studio/Universal Cities 1,368,792 - -111,124 18,993 21.7% 0.2% 21.9% $30.83

North Hollywood 839,475 - 51,700 101,876 14.4% 0.0% 14.4% $29.45

San Fernando Valley Total 15,088,332 - 15,723 319,692 18.6% 0.3% 18.9% $29.17

Metro LA Total 162,940,870 1,144,885 268,204 850,144 17.8% 0.8% 18.6% $30.65

Western SFV

Eastern SFV

Woodland Hills/Warner Center

San Fernando Valley Average


Sherman Oaks

Studio/Universal Cities

North Hollywood

Encino/Tarzana

Western SFV

Eastern SFV

Woodland Hills/Warner Center

San Fernando Valley Average


Sherman Oaks

Studio/Universal Cities

North Hollywood

Encino/Tarzana

7.8%

10.3%

12.7%

46.3%

18.3%

18.9%

18.6%

21.9%

$26.06

$25.55

$26.74

$29.70

$30.65

$27.98

$30.83

$29.45

$28.52

14.4%


12/16



OUTLOOK

Tri-Cities in recovery modeRental rates and flexibility have kept the Tri-Cities recovery on track

Vacancy is still elevated at 18.6%,more than four percentage pointsabove its ten-year historical averageof 14%. The Tri-Cities market,however, is taking full advantageof its strengths during the tenantupheaval that has taken place inrecent years.

The Tri-Cities has been an attractivealternative to its neighboring marketsdue to its lower rental rates. Forexample, the average asking rentalrates in Tri-Cities is 8% lower thanthe Financial District and Bunker Hillsubmarkets in downtown LA. Thisdoes not even take into account theadditional savings of tax benefits,parking, costs, etc. for operating inBurbank, Glendale or Pasadena.

The Glendale submarket has seenthe greatest turnaround of any of theTri-Cities. With year-to-date positivenet absorption of 134,079 sq. ft., theGlendale office market is witnessingan impressive resurgence from twoyears ago, when its largest insurancefirms downsized and relocated. Atyear-end 2010, the vacancy rate forGlendale was 29%, whereas it isnow down 6.4 percentage points to22.6%.

Although the average rental rate forthe Tri-Cities is sliding for the fourthconsecutive year, it is important tonote that diverse tenants associatedwith growth and dynamic industriesare slowly migrating into the area.Marvel Studios recently announcedplans to move from Manhattan Beachto Glendales Creative Studio area. n

2

134

134

2

210

210

210

101

BURBANKBURBANK

GLENDALEGLENDALE PASADENAPASADENA



369-399 E Colorado Blvd 256,703 $144,500,000 $562.91 The Irvine Company

801 N Brand Blvd & 700 N Central Ave 418,951 $73,200,000 $174.72 The Blackstone Group

525 N Brand Blvd 46,055 $10,200,000 $221.47 Phr 525 Brand



Guidance Software, Inc 1055 E Colorado Blvd 86,790 New Class A Lease

DineEquity Inc 450 N Brand Blvd 22,500 Class A Renewal

The Big South 175 E Olive Ave 20,475 New Class B Lease

Multilingual Assessment 303 N Glenoaks Blvd 10,224 Class B Renewal


13/16


TRI-CITIES OFFICE MARKET INDICATORS

SUBMARKET INVENTORY

UNDER

CONSTRUCTION

Q3 NET

ABSORPTION

YT D NE T

ABSORPTION

DIRECT

VAC AN CY

SUBLEASE

SPACE

TOTAL

VAC AN CY

AVERAGE

RATE PSF

Burbank 6,159,569 - 80,575 -74 13.0% 0.8% 13.8% $39.11

Glendale 5,245,058 - 53,622 134,079 22.6% 0.7% 23.3% $30.24

Pasadena 6,154,242 - 58,246 63,131 19.3% 0.0% 19.3% $30.66

Tri-Cities Total 17,558,869 - 192,443 197,136 18.1% 0.5% 18.6% $32.51

Metro LA Total 162,940,870 1,144,885 268,204 850,144 17.8% 0.8% 18.6% $30.65

TRI-CITIES MARKET AVERAGE ASKING RENTAL RATES

$10

$40

$30

$20

$50

CLASS A CLASS B

03 04 05 06 07 08 09 10 11 12

TRI-CITIES MARKET NET ABSORPTION AND VACANCY

-0.75

-0.50

-0.25

0

0.25

0.50

0.75

20%

0%

10%

30%


03 04 05 06 07 08 09 10 11 12

VACANCY


Tri-Cities Average


Burbank

Glendale

Pasadena


Tri-Cities Average


Burbank

Glendale

Pasadena

18.6%

18.6%

13.8%

23.3%

19.3%

$32.51

$30.65

$39.11

$30.24

$30.66


14/16



OUTLOOK



21250 Hawthorne Blvd 291,609 $52,000,000 $178.26 Bixby Land Company

2401 E El Segundo Blvd 106,597 $27,700,000 $259.86 Peregrine Realty Partners

2015 Manhattan Beach Blvd 86,400 $12,904,000 $149.35 Wedgewood Enterprise Corp

The South Bay office market still languishing with high vacancyThe recovery in the South Bay is not happening as fast as in other submarkets

Vacancy in the South Bay hasvacillated near the twenty-twopercent mark for the past year.Creating a hurdle to future recovery,buzz-generating tenants such asGoogle and Facebook, which pavethe way for other tech tenants tomigrate, have shown no real creative

demand in the market. Landing the750,000-sq.-ft. DIRECTV requirementis a tremendous accomplishment;however, gaining traction amongstsimilar technology-based firmsrequiring large blocks of space willbe the only way to recover from thelarge aerospace move-outs plaguingthe South Bay for years to come.

Four out of the seven South Baysubmarkets have experiencednegative net absorption year-to-date.Three of them tracked recordednegative net absorption for thethird quarter, while the overall SouthBay market posted an aggregatenegative net absorption. Demandis low in the South Bay; whileDIRECTVs future occupancy willhelp offset some of the negative netabsorption, the fundamentals will stillbe weak.

In spite of this, investment sales have

been active due to comparativelyhigher pricing metro- and region-wide. South Bay purchases are stillrelative bargains compared to WestLA, as illustrated by third quarterpurchases at 21250 Hawthorne Blvd.for $52 million ($178 per sq. ft. ) and2401 E El Segundo Blvd. for $27.7million ($260 per sq. ft.). Both dealsillustrate postive interest in the futureof the South Bay office market.n

91

1

1

90

22

47

47

19

103

110

110

710

710

105105 605

BEACH CITIES/

PALOS VERDES

BEACH CITIES/

PALOS VERDES

LAXLAX

190TH STREET

CORRIDOR/

HAWTHORNE/GARDENA

190TH STREET

CORRIDOR/

HAWTHORNE/GARDENA

ELSEGUNDOEL SEGUNDO

TORRANCETORRANCE

SUBURBAN LONG BEACHSUBURBAN LONG BEACH

DOWNTOWNLONG BEACHDOWNTOWN LONG BEACH



LA County Child Support Services Dept 20221 Hamilton Ave 66,824 Class B Renewal

Verizon 4811 Airport Plaza Dr 42,528 Class B Renewal

Pinnacle Travel Services 390 N Sepulveda Blvd 25,399 New Class B Lease

Federal Bureau of Investigation 4811 Airport Plaza Dr 22,264 New Class B Lease


15/16


SOUTH BAY OFFICE MARKET INDICATORS

SUBMARKET INVENTORY

UNDER

CONSTRUCTION

Q3 NET

ABSORPTION

YT D NE T

ABSORPTION

DIRECT

VAC AN CY

SUBLEASE

SPACE

TOTAL

VAC AN CY

AVERAGE

RATE PSF

LAX 3,630,364 - -55,010 -81,965 38.5% 0.0% 38.5% $18.27

El Segundo 6,862,732 - -12,025 137,052 13.4% 0.2% 13.6% $29.06

Beach Cities/Palos Verdes 3,034,721 - -78,243 -51,285 26.3% 0.0% 26.3% $31.66190th Street Corridor/Hawthorne/Gardena 2,195,569 - 69,644 94,928 24.4% 0.5% 24.9% $24.66

Torrance 1,713,895 - 4,207 -14,952 20.6% 0.0% 20.6% $25.83

Suburban Long Beach 2,837,609 - 32,727 26,339 15.9% 0.5% 16.4% $24.16

Downtown Long Beach 3,950,627 - 15,929 -54,589 22.1% 0.2% 22.3% $23.82

South Bay Market Total 24,225,517 - -22,771 55,528 22.0% 0.2% 22.2% $25.26

LA Metro Total 162,940,870 1,144,885 268,204 850,144 17.8% 0.8% 18.6% $30.65

RENTAL RATES BY SUBMARKETSOUTH BAY MARKET AVERAGE ASKING RENTAL RATES

$10

$30

$20

$40

CLASS A CLASS B

03 04 05 06 07 08 09 10 11 12


LAX

El Segundo

Beach Cities/Palos Verdes

South Bay Average


Torrance

Suburban Long Beach

Downtown Long Beach

190th Street Corridor/Hawthorne/Gardena

LAX

El Segundo

Beach Cities/Palos Verdes

South Bay Average


Torrance

Suburban Long Beach

Downtown Long Beach

190th Street Corridor/Hawthorne/Gardena

38.5%

13.6%

26.3%

22.2%

18.6%

20.6%

16.4%

22.3%

24.9%

$18.27

$29.06

$31.66

$25.26

$30.65

$25.83

$24.16

$23.82

$24.66

SOUTH BAY MARKET NET ABSORPTION AND VACANCY

-0.75

-0.25

0

0.25

0.75

20%

25%

10%

15%

30%


03 04 05 06 07 08 09 10 11 12

VACANCY


16/16


OUTLOOK

Copyright 2012 Transwestern. California Brokerage License #01263636. All rights reserved. No part of this work may be reproduced or distributedto third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern fromCoStar and other primary and secondary sources believed to be reliable Transwestern however makes no representation concerning the accuracyT 213 430 2525 F 213 624 9203

601 South Figueroa Street, Suite 2750Los Angeles, California 90017

9191

1

2

60

60

2

57

22

55

14

118

23

110

110

710

710

105

210

210

210

101101

101

SAN GABRIEL

VALLEY

SAN GABRIEL

VALLEY

DOWNTOWN

LA

DOWNTOWN

LA

TRI-CITIESTRI-CITIES

MI D-

WILSHI RE

MID-

WILSHI RE

WES T LAWEST LA

SOUTH BAYSOUTH BAY

CONEJO

VAL LEY

CONEJO

VALLEY

SAN FERNANDOVALLEY

SAN FERNANDOVALLEY

SANTACLARITA

VALLEYSAN TA CL ARI TA

VALLEY

MID-CITIES/

SOUTHEAST LA

MID-CITIES/

SOUTHEAST LA

METHODOLOGY

The information in this report is the result of a compilation of information onoffice properties located in the Los Angeles metropolitan area. Transwestern

obtained the information from a variety of primary and secondary sources,including CoStar.

This report includes single-tenant and multi-tenant office properties10,000 sq. ft. or larger, excluding owner-occupied properties, officecondominiums, medical office facilities, and properties owned and occupiedby a government agency.

METRO LOS ANGELES MARKET AREAS

CONTACT

Arty MaharajhSenior Research Analyst

[email protected]

Q3 2012 Los Angeles Office Outlook.pdf

Documents

Transcript of Q3 2012 Los Angeles Office Outlook.pdf