LOS ANGELES—The office market got off to a rocky start this year, with vacancy rates inching back up and pricing per square foot falling. Despite the sudden slowdown, however, office market experts still predict a strong and active year ahead. To find out more about the market and why there is no cause for concern, we sat down with Arty Maharajh, research manager at Avison Young, for an exclusive interview.

GlobeSt.com: We saw the vacancy rate tick up in the first quarter and negative net absorption. Is this cause for concern?

Arty Maharajh: We don't believe this uptick should be cause for concern or otherwise detract from the overall story for the region. That story is based on the facts that the L.A. economy remains strong with its diverse economic base, and it boasts a very low unemployment rate. At an unemployment rate currently around 4.3%, it is at its lowest level in over a decade.

GlobeSt.com: How important is pre-leasing to a new project?

Maharajh: Although pre-leasing remains an important component to any new development, especially as it pertains to securing favorable construction and takeout financing, it is by no means doomsday for a property especially for the Los Angeles market. The majority of the development under construction in L.A. is within established, densely populated, amenity rich, infill areas, which check all the boxes for users looking for new space.

GlobeSt.com: We also saw a lot of tenants relocating and downsizing. Will this be an ongoing trend in 2017, and if so, how will it impact leasing activity?

Maharajh: Yes, we expect to continue to see some tenants in the greater L.A. area relocate to less expensive sub-markets. In addition, as tenants learn to use space more efficiently and creatively and therefore do more with less, the right-size phenomenon will continue. While we will likely see a trend of somewhat smaller lease transactions compared to five years ago, overall leasing activity should be minimally impacted, especially as start-up companies enter the market, and as media, entertainment, and tech companies add employees and subsequently require more creative space. With its high concentration of writers, actors, and film production professionals, as well as its expanded California tax credit program, L.A. will continue to be the top location and draw for companies that curate media content.

GlobeSt.com: Was there any notable difference in the leasing activity between creative office and traditional office users during the quarter?

Maharajh: Creative office demand remains strong and is certainly the preferred office setting. The bulk of the 5 million square feet of office space under construction possesses some degree of creative design and functionality. To that end, while the demand for creative space remains robust, and rents are firm, today's occupier is seeking efficiency, functionality and an environment to attract and retain the top talent; thereby creating a very sophisticated tenant that has a strong understanding and appreciation for workspace design and efficiency.

GlobeSt.com: What is your forecast for the remainder of the year for office leasing?

Maharajh: Avison Young's forecast is cautiously optimistic, as we anticipate a continuation of current office fundamentals and office leasing activity remaining relatively stable. In recent quarters, demand for new office space has been primarily from a mix of professional services, finance, media, technology and health care industries, which we believe will remain strong in the near term.

GlobeSt.com: We saw the vacancy rate tick up in the first quarter and negative net absorption. Is this cause for concern?

GlobeSt.com: How important is pre-leasing to a new project?

GlobeSt.com: We also saw a lot of tenants relocating and downsizing. Will this be an ongoing trend in 2017, and if so, how will it impact leasing activity?

GlobeSt.com: Was there any notable difference in the leasing activity between creative office and traditional office users during the quarter?

GlobeSt.com: What is your forecast for the remainder of the year for office leasing?

Instant Insights /

Don't Worry About The Office Market's Rocky Start

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