The new report from Cushman & Wakefield blamed a host of economic news and corporate scandals that adversely affected financial and real estate markets, wlong with rising unemployment and other factors that reduced the demand for office space.

In Los Angeles County, the overall vacancy rate rose two percentage points in 2002, edging up 16.8&% at year-end 2001 to 18.8% at the end of fourth quarter 2002. Although some of the rise in vacancy resulted from new sublease space, Cushman & Wakefield says the 2.2 million sf of new office space delivered over the course of 2002 contributed more to the rise in vacancy. Of that 2.2 million sf of new space, 1.6 million sf remained vacant at the end of fourth quarter.

Triple net (NNN) asking rents in all areas declined over the course of the year and landlords became more generous with concessions in order to attract new tenants. Despite low interest rates that helped some facetsof the market, operating expenses rose, especially in more high-profile buildings as insurance companies increased premiums to compensate for the increased number of claims processed in 2001. Ssecurity costs skyrocketed also, adding to expenses.

The analysis showed 500,000 sf of negative net absorption in theLos Angeles Central Business District during 2002 as leasing sagged due to the limited number of new tenants in the market and a limited number of existing occupants that expanded their local operations. This led to an increase in overall vacancy from 17.8% at the end of first quarter to 19.6% at year- end. Of the leasing transactions closed in the CBD during 2002, most were renewals for existing space with a handful of expansions.

Sales of properties in the CBD provided an exception to the sluggish market, with three of the five largest 2002 office building tales taking place downtown.

Cushman & Wakefield expects the CBD to remain stable this year, but vacancy rates will not decline until early 2004, the firm believes, which is also pretty much the outlook for the suburban markets.