LOS ANGELES-“The office sector will remain depressed as long as unemployment levels remain high,” so says Richard Green, director of the USC Lusk Center for Real Estate and co-author of the 9^th annual Casden Southern California Industrial and Office Forecast. The USC Lusk Center for Real Estate’s annual check-up of Southern California’s industrial and office markets produced vastly different bills of health for the two real estate sectors this year.

The findings, which were unveiled Tuesday, signal modest growth for the industrial market, while the office market will remain depressed. “Clouding the office forecast is a shift in the traditional workplace,” Green continues. “Today, cubicles are the norm and concepts such as telecommuting, ‘hoteling’ and office-sharing are becoming more common and having an increasing impact on demand for office space. As a result, the office market may not see rent increases until the overall economy improves.” 

As for the industrial sector, Tracey Seslen, co-author of the forecast, says that the industrial sector is showing signs of recovery across the board. “The strong Chinese and Indian economies, combined with the weakened US dollar, have increased demand for US manufactured goods and greatly increased port traffic.” Seslen notes that a 16.9% increase in port traffic over last year will help stabilize—and in some areas, increase—industrial rents in the Southern California region.

Overall, the report, which analyzes data through the third quarter of 2010, shows a modest recovery in Southern California over the last year. However, a modest recovery, according to USC Lusk Center for Real Estate, “remains disappointing in the aftermath of the worst year for the economy in nearly 70 years.” According to the report, the best that could be said is that the economy stopped getting worse.

The forecast analyzes economic data, provided by Grubb & Ellis, on rents, vacancies, and transactions for office and industrial markets in Los Angeles, Orange, Riverside and San Bernardino counties. Other key forecast findings include:

Los Angeles County Forecast

*Continued job losses would cause a continued increase in office vacancies and decrease in rents, with no stabilization until 2012.

*With the nation’s largest port and tightest industrial market, industrial rents are expected to increase by 10.5% over the next two years

*The Inland Empire may enjoy the ripple effect as companies seek less expensive alternatives.

*Los Angeles remains one of the tightest industrial market in the country, with a 3.3% vacancy rate. Even with the approximately 250,000 square feet of industrial space currently under construction, rents are expected to rise in the next two quarters.

Orange County Forecast

*Though Orange County added 14,200 jobs, the office market will continue to struggle.

*In 2011, rents are expected to decline more than 12.9% for class-A buildings and 10.3% for Class B.

*In spite of the area’s overall improvement, the office vacancy rate hovered at 20.7%; thus, renters will continue to be able to lock in favorable rates.

*Increased demand for industrial space will cause vacancy rates to fall 2.1 percentage points over the next two years.

Inland Empire Forecast

*The Inland Empire office market will continue to experience moderate increases in vacancy rates and decreases in rents.

*An exception is the Ontario Airport area, which showed 105,000 square feet of positive absorption as companies seek locations near transportation arteries.

*With the affordable pricing, many owner/user entities are now jumping into the market as companies seek to lock in industrial space.

*While more than 2.2 million square feet of industrial space came on line last year, the increase in demand for industrial space will push rents a much as 6.6% higher.