Bob Howard LOS ANGELES-Office and industrial markets are moving more than meets the eye, according to the latest USC Lusk Center Casden Real Estate Economics Forecast, which says that slow-moving indicators “camouflage the dynamic sales and leasing activity across Los Angeles County, Orange County and the Inland Empire.” The forecast, which calls the Inland Empire “still the market leader,” cites strong property sales as investment funds diversify portfolios using low-cost capital, along with increased leasing as job growth improves. Delores Conway, recently named director of the Casden Forecast, comments that “Economic activity occurring below the radar screen bodes well for office and industrial markets across the region." Investment funds continue to pour capital into office and industrial properties throughout Southern California, while at the same time the strong owner-user market continues, according to Conway. The forecast cites the Inland Empire as the market leader with “a robust economy that encourages development.” In its observations regarding individual counties, the forecast describes Los Angeles County as a place where “soaring prices for office buildings will continue due to years of constrained construction and a large amount of investment capital chasing a limited number of properties.” While parts of the market still post high vacancy rates, such as the 19% in downtown Los Angeles and the South Bay, those vacancy rates “will decline in 2005 as job growth picks up throughout the county,” the report says. It forecasts modest increases in asking rents, with the exception of West Los Angeles, and it expects the county’s industrial market—with a 3% vacancy--to remain robust. In Orange County, the Casden Forecast sees an office market that “will benefit from continued economic expansion with vacancy rates declining as they approach their pre-recession levels,” but the forecast says the market needs stronger levels of job creation put it on firmer ground. It predicts improvements in asking rents and office lease rates in the next two years in the office market but foresees flat rents in the industrial market, where the forecast expects that no significant demand for industrial space will appear until late 2006. Both the office and industrial markets remain strong in the Inland Empire, according to the forecast, which sees international trade and available cheap land as two of the drivers in the region. Demand keeps office rents on the rise in San Bernardino County, and “Labor has expanded to such a degree that technicians, professionals and executives are joining the job ranks and creating demand for office space across Riverside and San Bernardino counties,” the report says. It predicts that the Inland Empire industrial market will continue to lead the Los Angeles metropolitan area with employment growth of 5%, producing rising rents and declining vacancies. The Casden Real Estate Economics Forecast analyzes economic data on rents, vacancies, transactions and employment for the Los Angeles County, Orange County and Inland Empire office and industrial markets. Much of the data was supplied by Grubb & Ellis, which co-sponsored the forecast with First American Title Co.
December 6, 2004