Forecast Sees Industrial Uptick, Office Lagging

[IMGCAP(2)]The office market will have to wait a while, however. The office sector recovery should begin in 2011, thanks to"expected growth nationwide in green technology, education and healthcare," according to Tracey Seslen, co-author of the forecast. Seslen says that, "Considerable downward pressures on office rents will continue" next year, due to job losses across the board. However, she adds, "The resulting drop in the value of many vacant office buildings will present new opportunities for cash buyers willing to wait out this downturn."

Richard K. Green, director of the USC Lusk Center and a forecast co-author, points out that although the Inland Empire's Riverside and San Bernardino counties have some of the highest unemployment rates in the country, "companies located in coastal areas will be setting up satellite offices in the Inland Empire where there is sufficient land and cheaper rental rates." Parts of the region will wait a long time for recovery, he points out, especially San Bernardino, which was substantially overbuilt.

The annual Casden Real Estate Economics Forecast analyzes economic data on rents, vacancies, transactions, and employment for office and industrial markets in Los Angeles, Orange, Riverside and San Bernardino counties. The market data was supplied by Grubb & Ellis.

For Los Angeles County, the forecast foresees continued job losses and office rents that may level out early 2011. The highest vacancy and lowest rents are expected in areas with high concentration of financial services including Westwood and Culver City.

For Orange County, the forecast says that proximity to the ports of Los Angeles and Long Beach, strong manufacturing base and no new construction in 2009 will help to keep industrial vacancy rates low. The county will lag Los Angeles in the industrial recovery because of its higher rents and higher vacancies. In the office sector, rents could fall 20% to 30% as landlords "redouble their efforts to retain tenants," the forecasters say.

For the Inland Empire, the forecast expects office vacancy rates to increase as jobs losses exceed national averages. "Abundant sublease space and new construction will keep office rents low," it says, and although the overall industrial markets will begin recovering next year, some submarkets will lag from overbuilding. "Chino and Temecula could be first to bounce back thanks to relatively low vacancies and a prime location on the I-215 corridor," the forecast notes.

USC is providing a complete summary of the 2010 Casden Industrial and Office Market Forecast online starting Dec. 11 at www.usc.edu/casden.