Yahoo, Riot Games Skew Office Absorption Numbers

LOS ANGELES—Don't be fooled by the negative office absorption numbers in West L.A. from 3Q15 reports, says Hans Mumper, executive managing director at Colliers International, exclusively. In 3Q15, the West L.A. office market had its first negative absorption numbers in 12 quarters, coming in at a negative 350,000 square feet, but Mumper says that these numbers are skewed by Yahoo! and Riot Games long-planned exits from the market. According to Mumper, West L.A. is still the strongest office market in Los Angeles.

“The fact that two major relocations occurred during the quarter—Yahoo! and Riot Games—was sheer coincidence and these moves were not a surprise,” Mumper tells GlobeSt.com. “They both had announced their intentions to move months ago, we just weren't sure of the actual move out date. That's why the absorption numbers for the quarter were skewed. The fact that both of these were major leases and that both were based in the Santa Monica submarket and that both would move at the same time, was just a coincidence. But even after these moves, the market remains the region's healthiest with the lowest vacancy and the highest demand. I have no problem whatsoever in flatly stating that West Los Angeles is the strongest office market in the greater L.A. region at this point in time.”

The two firms moved because of the limited availability of large blocks of space in the West L.A. market. Even with these large exits, the submarket still saw increasing rents and had the lowest vacancy rate of any other L.A. market. As an example of the activity, Mumper notes that while these two companies moved during the quarter, another investor, Cain Hoy Enterprises, set a pricing record in Beverly Hills, paying $130 million or $1,098 per square foot for an 118,400 square-foot office asset. “There is no other market in the region that even comes close to a price like that. Again, it's all about demand,” he says, naming the entertainment and digital media companies in the area as being the drivers behind much of the activity.

Mumper doesn't expect the activity to slow down, and doesn't think that these moves are any indication of a looming plateau. “I don't think we're close to the end of the commercial real estate growth cycle in West Los Angeles,” he says. “In fact, there are some observers who think we have a lot more runway to go, although I'm reserving judgment on that claim until we see what happens over the next few quarters. In this market, we are investors who know that as long as the economy continues to strengthen in all sectors, especially in those industries like entertainment and digital media that have long favored a Westside address, any gambles they are taking on properties now will likely pay off.”