LOS ANGELES—The office market vacancy rate fell slightly at the end of the year, according to the fourth quarter office report from Newmark Grubb Knight Frank. The report shows a stronger office market performance than an earlier office report from Savills Studley, which showed the office market taking a pause at the end of the year. This year, the NGKF report forecasts more activity and new development in the office market. To get a look at the year ahead and the office performance in 2016, we sat down with Bradley J. Feld, Vice Chairman at Newmark Grubb Knight Frank, for an exclusive interview.

GlobeSt.com: What industries are responsible for the end-of-the year activity?
Bradley J. Feld: Leasing momentum for Class A office product remained strong throughout 2016. In the fourth quarter of 2016, the vacancy rate reduced slightly when compared to the previous quarter. I believe this improvement was due to companies that were anxious to finalize leases before year-end. While we can't attribute the leasing activity to any one industry, the good news is that Los Angeles is not dominated by a single industry. The diversity of tenants is a significant factor in the ongoing strength of the market as entertainment, media, technology, law, and start-ups are all expanding.

GlobeSt.com: Has the gap between creative and traditional space continued to narrow, and has leasing activity increased from more traditional space?
Feld: The reality is that what we know as traditional office space is almost completely out of fashion with business today. Almost every industry, from Fortune 500 to a brand new start-up, wants creative and collaborative office space and more amenities. Landlords are adjusting quickly to accommodate this demand because companies won't settle for traditional any more.
GlobeSt.com: Construction also began to increase. Is new construction warranted with vacancy rates at 13%?
Feld: Absolutely. What is important to note is that most of the vacancy in Los Angeles is confined to specific buildings rather than widespread across submarkets. The vacancy is controlled by fewer landlords and asking rents support new construction with several of the higher priced markets in the $5.00 to $ 7.00 per square foot range.
GlobeSt.com: What is your outlook for 2017 based on the 2016 performance?

Feld: At the end of 2016, we reported that net absorption had remained positive for 14 consecutive quarters. We expect this trend to continue into 2017. This is going to be another strong year of leasing and absorption. Rents will continue to rise due to demand, especially in some of the most sought after markets such as the Westside, Hollywood, the Lower Westside and Burbank.

Instant Insights /

Office Construction Ramping Up This Year

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