Los Angeles

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The Downtown Los Angeles office market is an enigma, and thefourth quarter report from the DCBID is a perfect example of themarket dynamic. In the fourth quarter, the vacancy rate increased9.6%, while the class-A lease rate also increased 5.4%. Leasingactivity clocked in at 3.8 million square feet, while netabsorption was negative 4,305 square feet.

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"The movement of the vacancy rate in this quarter wasattributable to several factors. We added a couple hundred thousandsquare feet of office space with the Trust Building ,7th and Olive and a few buildings on Broadway,"Nick Griffin, executive direction at the DCBID,tells GlobeSt.com. "So, we have added inventory. There were a fewdepartures that had been announced a while back but took effectthis quarter, including Thomson Reuters, which is pulling out ofSouthern California in general, and City National. So, I think thevacancy rate has more to do with moving around and new inventorythan broader demand."

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Griffin says that the strong rent growth is actually a betterindicator of the demand rather than vacancy rate. "The rent persquare foot is a stronger indicator of the demand in the marketbecause landlords are able to get a higher rent for the space thatthey are losing," says Griffin. "Overall, there is plenty ofleasing activity, meaning they are able to fill those spaces.Overall, the important trend is the desirability of downtown as aplace for companies and growth industries, and that is indicated inthe increasing rent per square foot."

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The current dip in leasing activity is due to move-outs, notrightsizing, That trend has subsided, according to Griffin. "A fewyears ago, we were able to take up a certain amount of slack in theoffice market because of right sizing," says Griffin. "Law firmsand accounting firms were using a lot less space that they used to.That process had really run its course by 2018, and now we aredealing with a solid base. Now, downtown is becoming desirable fora significantly broader range of industries, like tech, media,fashion, design and architecture. That is where the new activityand the demand is coming from."

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The vacancy rate should start to trend down this year. "We aregoing to start seeing the market trending mostly down in terms ofthe vacancy rate," says Griffin. "The market is strong enough nowthat starting this year the vacancy rate is going to start trendingdown. We are one or two years away from a major shift in themarket, and we are going to see one or two deals this year thatwill have a major impact on the vacancy rate."

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.