Report Hints of Office Market Recovery

LOS ANGELES, CA-A top executive at CB Richard Ellis sees a flicker of recovery in the L.A. County office market’s second-quarter performance, but reports from CB and other brokerage houses still show lots of red numbers in their statistical reviews of the second quarter.

The brokerages use red numbers to indicate negative absorption, meaning a decline in the amount of occupied space during a given period. Positive absorption means a gain in the amount of occupied space.

For the second quarter of this year, recently released reports from CB, Insignia/ESG and Cushman & Wakefield indicate negative absorption in many of the county’s markets for the second quarter and for the past year, along with vacancy rates that remain substantially higher than they were a few years ago.

But CB’s Lewis Horne, senior managing director of the Los Angeles region, notes that suburban office markets during the second quarter “lent credence to the belief that the market may be heading toward the road to recovery.”

A bright spot, Horne says, is that the suburban office markets “collectively pushed net absorption back into positive territory, despite the 450,000 square feet of negative absorption experienced in the traditional strongholds of office space, Downtown and the Westside.”

Says Horne, “We are even more optimistic now, than at the beginning of the year, that the office market will continue to pick up in the third quarter and continue to gain momentum through the end of the year and into ’03.”

CB pegs the county’s overall office vacancy rate at just over 16.5%, including 2.8% of sublease space, saying that the relatively small county-wide positive absorption of 126,000 sf nonetheless was an improvement over the nearly half a million sf of negative net absorption in the first quarter this year.

Cushman & Wakefield shows the L.A. county vacancy at 18% and Insignia/ESG reports it at 17.13%. Such differences are not unusual because some brokerages classify space as vacant only when it is physically empty, while others count it as vacant as soon as it is offered for lease.

Insignia notes, for example, that a considerable amount of additional space is available for lease although it is not physically vacant. The amount of available space, its report shows, is about 19.5%.

The brokerages’ figures also differ because they calculate the vacancy rates based on total office inventories that can vary by millions of square feet from one company to another.