Report: Real Recovery Not Due Until 2004

LOS ANGELES, CA-Office and industrial markets in the Los Angeles region will begin to recover in 2003, but a full-scale recovery won’t get under way until 2004, according to a University of Southern California Lusk Center forecast released today.

Raphael Bostic, director of the Casden Real Estate Economics Forecast at the university, predicts that the office market should achieve a “full- blown recovery” in 2004 that will be marked by declining vacancy rates, rising rents, and less-generous concessions from landlords.

Bostic’s forecast says part of the recovery will be driven by Southern California’s ports and manufacturing businesses, which will begin to improve in 2003, creating more demand for industrial and warehouse space. The demand is expected to be especially high in the Inland Empire, especially in the Ontario airport area, one of the nation’s largest concentrations of modern, big-box warehouse space.

Among Los Angeles County’s office markets, the strongest growth will begin in the San Gabriel Valley next summer, the forecast predicts. The mid-Wilshire, San Fernando Valley and downtown office markets should also perform well by mid-year, but the West Los Angeles market will continue to struggle because of the slump in the technology and communications industries, according to the forecast.

The county’s industrial real estate market will grow very little over the next two years, but the market’s vacancy rates are expected to remain very low and its rents stable in 2003.

The outlook for Orange County’s office market foresees a rebound in 2003 from a steep downturn in which vacancy rates peak at 15% and rents plummeted 20%. But the recovery will be slow, hindered by a supply of more than 1.5 million sf of space that came on the South County market over the past three years. It will take at least two years for this space to be absorbed in areas such as Aliso Viejo, Ladera Ranch and San Clemente, the report says.

The Inland Empire office market, which has remained one of the strongest in the country throughout the recession, should continue its strong performance in 2003. Vacancies will fall and rents increase at an accelerating rate during 2003 and into 2004, the forecast predicts.