CBRE's locally based research team reports that office occupancy has remained steady, but is predicted to rise.

NEWPORT BEACH, CA-Steady as she goes seems to be the trend for office occupancy in Greater Los Angeles, Orange County and the Inland Empire during the first half of 2013, while industrial levels varied across the region, particularly in the second quarter, reports CBRE Research. In fact, industrial activity in Los Angeles County fell in the first half of the year as compared to 2012, a trend that can be partially attributed to low inventory levels leaving fewer options for tenants.

In Orange County, office-market fundamentals remain healthy in terms of low vacancy and steady lease rates. On average, more tenants are growing and leasing space rather than downsizing and vacating space, the firm reports. For L.A., however, overall asking lease rates flattened in the first half of the year but are expected to increase gradually over the next 18 months. The majority of tenant activity is occurring in class-A properties as companies continue to take advantage of favorable market conditions.

According to Gary Baragona, director of research and analysis for CBRE, “Although the Southern California office market has been fairly flat during the past couple of quarters, performance continues to be highly localized from market to market with suburban-office markets showing the strongest activity. We expect all of the key real estate indicators to continue to improve in the second half of this year, while strong projected job growth should result in more impactful changes to lease rates and vacancy rates beginning in 2014.”

Across both L.A. and Orange County, the demand for creative-office space continues to be a trend, with West Los Angeles, a hotbed for technology companies, continuing to lead this segment of the market. Throughout the first half of the ear, West L.A. outperformed other markets in terms of net absorption and asking rents. Asking lease rates in this submarket are approximately 38% higher than the average overall Greater Los Angeles asking lease rate, and vacancy levels continue to decline dramatically, according to CBRE.

Regarding the industrial sector, Baragona added in a prepared statement that there is about 15.7 million square feet of industrial development underway, “which is a strong vote of confidence from owners and developers regarding the near-term health of the market. We expect these positive trends to continue through the rest of 2013 and into 2014, especially in the class-A distribution sector where demand is being fueled by e-commerce distribution companies.”

In L.A. County, asking lease rates for industrial properties continue to improve, and rates are expected to rise by 6% to 7% over the next 18 months. On the development front, new industrial space in the L.A. infill markets is being driven by demand for functional class-A space. The bulk of the new construction is located in the South Bay submarket and the majority of under-construction product is expected to be delivered to the market during the second half of the year.

Industrial building sales in Orange County are extremely active, and sale pricing is up 25% since the end of 2012. At the same time, vacancy levels have stabilized and are expected to remain that way in the foreseeable future. As a result, CBRE predicts that lease rates will begin to increase by the end of the year.

In the Inland Empire, landlords have been confident about industrial rent growth, and there continues to be strong activity from tenants for requirements of all sizes, CBRE reports. New construction in the region should create an increase in vacancy and availability, which currently remain at historic levels. Buildings in the 500,000-square-foot-and-above range are still outperforming all other size ranges; lease rates for 300,000 square feet and below remain low, but given the recent activity and decrease in vacancy, rents are expected to improve in the next 12 months.