Large tech leases dominate the LA office market at year-end 2018
At mid-year 2018, the Los Angeles office market saw net ab-sorption swing positive due several large corporate expansions across the region. This caused total office vacancy to decrease to 15.2%. Led by strong office space demand from the enter-tainment, media, technology, and coworking sectors, expect a few large office leases to be signed in the second half of the year, especially as the rise of digital media has become the primary growth driver in Los Angeles this cycle.
Direct weighted average asking rental rate up 3.7% year-over-year
The direct weighted average asking rental rate increased to $41.71 PSF per month market-wide (up 3.7% year-over-year). While Class A office rents increased to $44.85 PSF (up 2.7% year-over-year), Class B office rents have increased at a faster rate over the past year and are now up to $35.88 PSF (up 6.9% year-over-year). The most expensive office submarkets at year-end 2018 remained the Westside high barrier-to-entry submar-kets of Santa Monica, Playa Vista, Century City, Beverly Hills, and West Hollywood. Assuming continued strong space de-mand, expect annualized rental rate growth of 3-5% market-wide with higher growth in a handful of low-vacancy submar-kets in 2019.
Los Angeles continues to be a highly attractive market
A total of nearly $5.8 billion in office buildings traded in, down 22% from the $7.5 billion reported in 2017. Despite many in-vestors becoming increasingly cautious in their acquisition underwriting amidst rising interest rates, demand for larger well -located office properties remains at an all-time high.
Los Angeles continues to be a highly attractive market for in-vestors and lenders due to its well-diversified regional econo-my, “tech-tainment” industry growth, and steep barriers to entry in several highly sought-after office submarkets. As a result, the first half of 2019 is expected to see even more large office assets trade at record-breaking pricing despite the fact that right now is largely considered by many to be late-cycle.