Los Angeles -- Slow-moving indicators in the office and industrial markets are camouflaging dynamic sales and leasing activity across Los Angeles and Orange counties and the Inland Empire, according to a USC forecast. The Casden Real Estate Economics Forecastcolor> was released today by the USC Lusk Center for Real Estatecolor>.
"We've come through the recession with new job growth and optimism that the economy will continue to grow at a slow and steady pace," Delores Conway, director of the Casden Forecastcolor>, said at a USC briefing for real estate executives. "Economic activity occurring below the radar screen bodes well for office and industrial markets across the region," Conway said. "Investment funds are voting with their money as they pour capital into office and industrial properties throughout Southern California. "At the same time," she said, "business owners are buying office buildings and warehouse/manufacturing space in Riverside, Ontario and San Bernardino."
The Inland Empire remains the market leader with a robust economy that encourages development, according to the forecast, which 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. In Los Angeles County, according to the forecast, "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 are still experiencing high vacancy rates -- 19 percent in downtown Los Angeles and the South Bay -- rates will decline in 2005 as job growth picks up throughout the county, according to the forecast. "Expect only modest increases in asking rents with the exception of West Los Angeles where the long-awaited leasing recovery seems to have arrived," the forecast states. "The San Fernando Valley submarket offers the strongest clues that a recovery is under way as vacancy rates dropped from 12.8 percent in 2003 to 10 percent in 2004." Pasadena and Burbank will continue their leadership in rising rents and declining vacancies, according to the forecast.
Expect continued stability in lease rates during the next two years, the experts say. With 500,000-plus manufacturing workers, Los Angeles County is one of the largest industrial markets in the country. Current vacancy rates at 3 percent should remain low due to a shortage of large blocks of vacant land and the rise in residential loft development in older downtown warehouses, the forecast states. The Alameda Corridor is expected to continue to spark the industrial market in Central Los Angeles, while the San Fernando Valley submarket attracts companies looking for large warehouses in Valencia and Santa Clarita.
On the office market front, Orange County continues on a steady road to recovery. The region should benefit from continued economic expansion with vacancy rates declining as they approach their pre-recession levels, the forecast says. The airport submarket showed the strongest net absorption -- 900,000 square feet -- in 2004, accounting for almost half of all leased space in Orange County. Countywide, vacancy rates should continue to decline at a steady pace due to limited construction and increased demand, the forecast says. But stronger levels of job creation are needed to put the office market on firmer ground, the Lusk Center warns. Landlords should begin to see improvements in asking rents and office lease rates in the next two years, according to the forecast. While the county has not recovered completely from the 2001 recession, job growth is positive and should increase to about 2 percent in 2005, the Lusk Center reports. "But don't expect significant demand for industrial space until late 2006," the forecast states. "Rents will remain flat with a slow improvement in vacancies." The airport submarket is witnessing more active leasing that should continue next year, and the North County submarket is also improving from its proximity to the powerful Inland Empire economy, according to the forecast.