LOS ANGELES-Mid-quarter office market analysis conducted by Voit Real Estate Services reports the “Los Angeles economy is starting to lose momentum,” leaving the commercial office market stagnant. The report shows that growth in specific submarkets, like West Los Angeles, is offset by losses in other submarkets and industry sectors, most notably government, manufacturing and trade.

“Los Angeles' economic slowdown is coming at an unfortunate time in which there's still so much ground to make up,” the report states. “Unemployment remains well above the national average and local government finances are way out of balance. Take into account the high cost of living, stagnating income levels and soaring home prices, and conditions are ripe for a mass migration out of the metro. This is the vicious cycle that has gripped Los Angeles over most of the last two decades, and it will materialize as weak economic performance over the forecast.” Although job growth between 2013-2015 is expected to average 2.1% annually, which is in line with the U.S. average, the report forecasts job growth will slow in the following years due to a trend of employers moving to more affordable metro areas.

West Los Angeles receives the bulk of growth with submarkets like Beverly Hills, Culver City and West Los Angeles experiencing rent gains of 5%, while Santa Monica continues to experience rent gains as high as 10%. “However,” the report notes, “with many non-media-focused submarkets still struggling, aggregate metro rent growth has been, and will continue to be, conservative. It will take until 2017 before rents finally regain their prior peak.”

Likewise, investment trends in West Los Angeles remain strong, with the market regaining its standard 10-year dollar average. With the entertainment industries heightened West Los Angeles presence, submarkets have seen a higher percentage of investment volume than in past years. In a broader market view, the report notes that “investment volume has fallen short of the market's 10-year average in every quarter since early 2008 with the exception of 4Q12, and that activity was more likely driven by impending capital gains tax than an improvement in investor sentiment.” Gains in West Los Angeles are offset by substandard investing volume in the North Los Angeles, South Bay and the downtown submarkets. The technology industry, though, has been pulling investors to Marina del Rey, which has experienced several large sales in recent years, namely Hines' purchase of SF Campus in Playa Vista for $218 million.

Development has proven to be one of the market's more static sectors, with few stand-alone construction projects in development and almost none in West Los Angeles where demand is the highest. The Voit report says, “With vacancies still hung up at above-average levels and rents too low to justify construction in much of the metro, development should remain light indefinitely.” Three notable properties in current development include downtown's Wilshire Grand building, the Millennium Hollywood and the Century City Center, which are high-rise buildings and therefore restricted to specific submarkets that often have weaker demand.

Although the Voit report showed substantial growth and investment in certain submarkets, the broader Los Angeles market growth is static.