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Tuesday, August 21, 2007

Office Vacancy Rate in L.A. County Falls to 9.2%

During the second quarter office vacancies in Los Angeles County continued to shrink as white-collar businesses expanded at a steady but slow rate, continuing the development of a very healthy office market.

The county's overall vacancy rate was 9.2% in the second quarter, following a downward trend from 11% a year earlier. Average asking rents rose 14% to $2.53 per square foot per month, as buildings filled up. In very desirous markets such as Santa Monica and Westwood, they exceeded $4.32 per square foot.

Rent increases are going to rise further for at least the rest of the year, especially on the west side. Landlords will take the opportunity to boost rates as buildings fill up and there is little new office construction.

Historically, when the vacancy rate falls below 10%, developers begin constructing new buildings, however construction costs have climbed a great deal in recent years. Although rents are rising, they are not high enough in most parts of Southern California to justify the cost of new buildings.

The recent consolidation in ownership of office buildings is also driving up rental rates. The Blackstone Group and General Electric Company, which spent billions of dollars acquiring office buildings over the past few years, are among the largest landlords.

Downtown L.A., the second largest office market after the Los Angeles west side, saw a small improvement for building owners as the vacancy rate fell from 16.3% a year earlier to 15.5%, and rents climbed from $2.41 per square foot to $2.65.

The area around Los Angeles International Airport, where vacancies rose slightly to 33.5% and average rents fell 3 cents to $1.42 a square foot, provided some of the greatest office rental bargains for tenants in the second quarter.

Tell us your thoughts.

7:47 pm pdt 

Sunday, August 12, 2007

Southland Rents Affected by Housing Skid

Occupancy rates are slipping for southland apartment building owners as more apartments and vacant houses are coming on the market.

Landlords throughout Southern California, after years of substantial increases, are finding it's getting harder to increase rents at the same fast pace. Rents are still rising on average, but more slowly than they have been.

The Inland Empire is the hardest hit with this problem, where the slumping housing market is creating new competition in the form of vacant and unsold homes. And to exacerbate the problem, Riverside and San Bernardino counties have experienced a boom in new apartment construction that dumped almost 5,000 units on the market over the past year.

According to Delores Conway, a USC economist, "There has been more new supply in the past year than in the past five years. With this much supply, the demand has not been as strong."

According to data being released by RealFacts, a Novato, Calif.-based research firm, the occupancy rate in the Inland Empire fell to 93% in the second quarter from 94.9% a year ago. Occupancy of 95% or better is necessary for a building to be considered fully occupied.

Elsewhere in Southern California, landlords also experienced sliding occupancy rates and slower rent growth. In Los Angeles County, the average monthly rent in the second quarter rose 6.4% to $1,607, compared with a year ago, but the pace of rent growth was the slowest in a year. The occupancy rate slipped 0.6 of a percentage point to 95.3%.

Landlords found themselves competing with sellers to attract tenants during the Southland's housing boom that began earlier this decade. Low interest rates and creative financing made owning a home in many cases as cost-effective as renting. Occupancy rates then fell below 95% and rent hikes were minimized.

Some would-be buyers became renters as home prices soared and interest rates rose, driving up demand and giving landlords more leeway to hike rents. In the third quarter of 2006, Los Angeles County's average monthly rent surged 8.3% year over year.

But now as the housing market is starting to temper — and home prices in some neighborhoods are declining — landlords' ability to push up rents could be forestalled.

What are your thoughts on this matter? We would love to hear from you.

7:13 pm pdt 

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