DTLA Office Rate Still Hovers at 18%

LOS ANGELES—The Downtown Los Angeles office vacancy rate is still hovering in the high teens, according to the latest report from the DCBID. While the number is inching down from more than 20.4% to 18.4% in the last year, it is still significantly higher than the office vacancy in Los Angeles, which was 15.1% in 3Q15, according to office reports from several firms.

Still, the DCBID doesn't see the high vacancy as a cause for concern. "This is partly due to shifts in how companies use space. While 800,000 square feet of new tenants moved into downtown from other markets over the last five year, that has been off-set by the rightsizing of the largest tenants in the traditional FIRE industries (Finance, Insurance, Real Estate), who are not reducing headcount, but using less space per employee," Carol Schatz, president and CEO of the DCBID, tells GlobeSt.com. "It is also because many of the top buildings are under new ownership which is investing their investment in upgrading properties, which is just starting to show results as rents are going up and landlords are not rushing to fill space, preferring to find quality tenants." She notes large-scale leases like the Capital Group signing 305,000 square feet and Lewis Brisbois 215,000 square feet as evidence that things are moving in the right direction.

While vacancy is high, last month GlobeSt.com reported that several firms were renewing their leases early with the anticipation of rising rents in the market, and in the third quarter, the PacMutual office building traded hands for $200 million. These are signs that investors and tenants are both bullish on the market. "The new growth areas are the technology, media and information industries, but also architecture, design, engineering, and fashion," says Schatz. "Co-working spaces are another growth area catering to creative, tech and entrepreneurs—with a company like WeWork taking a total of 135,000sf and several others following suit."

While the vacancy is still high, it is inching down, along with a 54% year-over-year increase in leasing volume, 2 million square feet of office leasing volume and 107,101 square feet of year-to-date net absorption. This includes leases with WeWork, CrossCampus, DLR Group, and law firm Fragomen, Del Rey, Bernsen & Loewy LLC, all of which signed leases during the third quarter. Additionally, the market has 1.2 million square feet of office space under construction. This all indicated a strong future, according to Schatz. "Signs point towards continued expansion of activity in the growth sectors, and increased stability in the more traditional sectors, so the combination looks good," she says. "And again, as downtown as a whole becomes more dynamic and desirable in terms of all sectors—residential, retail, arts and culture—it becomes more appealing to the top companies."