Spurred by slow job growth, the Southern California office and industrial real estate markets are in a slow recovery, which should result in improved market conditions over the next two years, according to a University of Southern California market forecast released Tuesday.
The 10th Annual Casden Southern California Industrial and Office Forecast said 2011 saw lower vacancy rates in 11 of 14 industrial Southern California submarkets and in 11 of 17 office submarkets.
Over the next two years, the Los Angeles County industrial vacancy rate should decrease 0.4 percentage points to 2.7 percent, while rents should increase 9.8 percent to 55 cents per square foot, the report said. The county’s industrial market remains the tightest in the nation, the forecast said. Vacancy declined 0.2 points this year to 3.1 percent and rents dipped only one cent compared with last year.
“Although Southern California is a long way from pre-crisis levels of economic health, the improved employment picture and profound turn around in the industrial market are signs of a slow recovery,” study author and USC professor Tracey Seslen said in a statement.
Unemployment in the county fell 0.7 percentage points to 11.9 percent this year, according to the news release announcing the forecast.
While the USC Lusk Center for Real Estate’s annual analysis expects more demand for office space over the four counties it covers, the market is still heavily constrained by the poor economy as businesses remain hesitant to expand.
The L.A. County office vacancy rate dipped 0.4 percentage points to 16.6 percent this year. Asking rents for Class A space declined 2.3 percent to $2.94 per square foot, while Class B rents jumped one percent to $2.17 per square foot.
Over the next two years, office vacancies in L.A. County “should remain stable,” according to the USC forecast, but Class A asking rents are projected to decline 7.7 percent, while Class B space should decline 7.3 percent.
The study--which tracked the office and industrial markets in Los Angeles, Orange, Riverside and San Bernardino counties using Grubb & Ellis data--said there still could be bumps in the road.
“Sovereign risk in Europe, geopolitical turmoil and the growing U.S. debt crisis are undermining consumer confidence. Port and rail traffic, particularly activity at the Port of Long Beach, is down and could hinder the positive outlook for industrial rents,” Seslen said.
The report also said rent rose in four of 17 office submarkets and eight of 14 industrial submarkets. Overall, the decreases weren’t as great as the past two years, the report found.