The second quarter of the year appears to show a North Los Angeles office market making a gradual comeback, while industrial is still hot.
“It’s a good quarter,” said Caitlin Hoffman, an office broker with Colliers. “Rental rates are up. Absorption is flat, vacancy quarter to quarter is flat. It seems like we’ve cycled through a lot of the sublease space put onto the market in the last two years. Now we’re just working through normal lease expirations.”
According to Colliers data, office vacancy has held steady in recent quarters; it’s highest in Glendale, at 23%, followed by Conejo Valley (22%), Antelope Valley (21.5%), Santa Clarita Valley (20.4%), and East San Fernando Valley (19.3%).
“Historically, Glendale has trended toward back-office requirements,” Hoffman explained. “They’re having a tough time getting employees back to the office. Glendale doesn’t benefit as much as everyone would like it to from neighboring Burbank and having a strong entertainment core.”
The data in Conejo Valley is a little misleading, she said.
“There’ve been quite a number of larger office buildings for that market that have either been acquired by owner-users or converted from an office to an alternative use: industrial, life science or multifamily,” Hoffman said. “Even in Conejo Valley, while it seems comparatively high to the rest of L.A., when you slice out the numbers, the true class-A is still faring quite well at pretty big rents and the vacancy rate isn’t close to the vacancy rates of the last recession.”
In the central Valley, Sherman Oaks and Encino have always been the strongest part of the market, while West Valley has Woodland Hills.
“You’re seeing some larger back-office users moving out of the market,” Hoffman said. “Overall, Woodland Hills has the fundamentals for a strong return. You’ve had so much residential and mixed-use housing being developed with the Warner Center 2035 Specific Plan. Entertainment coming in with the Rams is going to be huge game-changer for Warner Center. The office market seems to be the last to follow.”
Absorption rates are relatively flat, hovering in the minus mid-30,000s.
“It doesn’t seem as if there’s been some sublease space added to the market,” Hoffman said. “You’re seeing the effects of tenants downsizing within the market.”
For example, in Glendale, insurance company Gallagher moved from two floors to one floor, freeing up 30,000 square feet.
“It seems like the current trend is that tenants are realizing there’s going to be some long-term work from home and they’re taking this opportunity to right-size their footprints as their leases expire,” Hoffman said.
“In Ventura County, the only developable land is along the 101 and then you have mountainous regions on the other side,” Hoffman said. “There’s no remaining parcels of land large enough to build any office of size in Ventura County.”
As for the Valley, many development opportunities have gone into multifamily properties.
“With industrial prices being almost as high on a net basis as office prices,” Hoffman said, “developers are rethinking slated office development into industrial development, so I think that will halt new development on the office side, at least for the foreseeable future.”
Industrial continues its momentum, posting low vacancies of under 1% throughout most of North Los Angeles. The Conejo Valley posted the highest vacancy, at 3%, while Central and East San Fernando Valley and Simi Valley/Moorpark each posted 0.1% vacancy rates.
Colliers Executive Vice President David Harding, who operates out of Glendale and Encino, said the low vacancy extends beyond the region.
“It’s all over the Southern California market,” he said.