Steady performance is expected across the entire market in 2003, after downtown's national attention a year ago Article by Michael Gottlieb Looking ahead into 2003, the story of greater Los Angeles' 183 million-square-foot office market has changed as much as it has stayed the same. Once again, downtown Los Angeles holds the real estate industry's attention as the once high-flying Westside struggles to make a comeback. The city's core will benefit from new high-profile developments opening this year, including the $300 million Frank Gehry-designed Disney Hall and the 13.6-mile Gold Line, a Metropolitian Transportation Authority light rail commuter line connecting downtown to the heart of Pasadena. The growth of downtown's residential population continues as thousands of high-end rental units open to allow workers to follow their jobs. A Ralphs supermarket is two years away from completion, which along with the weekend bar scene at the new Standard Hotel and a flurry of new restaurants and other services, bodes well for transforming the area into a 24/7 environment that will attract office tenants all the more. Investor interest remains high in the central business district as deal makers look for bargains in investment grade properties. As much as a third of downtown's office space could trade hands in 2003, according to Grubb & Ellis's most recent market report. And now, with the possibility of the Los Angeles Police Department moving from its earthquake-damaged headquarters near City Hall into 300,000-to-400,000 square feet of yet-to-be-identified office space, one of the empty towers on the downtown skyline may finally get its fill. But one significant change colors the outlook for Los Angeles' central business district in 2003. Office absorption has gone negative downtown in recent quarters, despite a stable overall vacancy rate in Los Angeles County in the third quarter of 16.5 percent. Meanwhile, West Los Angeles is catching the eye of tenants again, after average asking rents fell from the stratospheric highs of the tech boom to a market high $2.84 per square foot per month, according to CB Richard Ellis' latest figures. Decreasing West Los Angeles sublet space in the second and third quarters of 2002 prompted positive absorption marketwide. Overall, the 2003 outlook appears steady in the Los Angeles office markets, according to the University of Southern California's Lusk Center for Real Estate, which predicts in its Casden Real Estate Economics Forecast a recovery beginning in mid-2003 with a 2.5 percent regional economic growth rate. "By 2004, the region's office market should be in a full-blown recovery with declining vacancy rates, rising rents and less generous concessions from landlords whose profit margins will noticeably improve," said Raphael Bostic, director of the forecast. The Casden forecast singled out the San Gabriel Valley and Wilshire Corridor submarkets as leading the way in 2003, following declines in vacancy and stable rents throughout the recession. The Tri-Cities and San Fernando Valley submarkets will follow. Both submarkets experienced increases in vacancy rates during the downturn, but those rates remain lower than in the Westside submarkets of Santa Monica, Westwood, West Hollywood and Hollywood. Century City, meanwhile, has held up fairly well as the city's Westside central business district. According to the Casden forecast, the positive absorption and stabilizing rents seen recently in the West Los Angeles submarkets might indicate the beginning of a return to overall economic prosperity. South Bay, which is closely connected to the health of the Westside, also appears poised for growth. That submarket saw increases in vacancy, "though nothing like the carnage that hit the West L.A. submarket," the Casden 2003 forecast stated.
January 6, 2003