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Los Angeles Office Market - Supply and Demand Outlook 2015

Los Angeles Office Market – Supply and Demand Outlook 2015

In a recent market report Marcus & Millichap analysts estimate that, in 2015, Los Angeles will add to the wave of U.S cities that have recovered from the economic downturn. Asking rents for office space set to record five years of growth, vacancy rates finally going under 15 percent and employment driving further growth for the market are the combined factors that will power Los Angeles’ post-recession economy.

In terms of employment, Los Angeles will gain a 2.5 percent increase in payroll, which translates into 104,000 new jobs—around 41,000 of which will be office-using employment, an almost 4 percent jump according to Marcus & Millichap.

Developers are set to add around 2.4 million square feet of office space in Los Angeles in 2015, triple the amount of new inventory added to the market in 2014. The Los Angeles office market is ranked 14th in Marcus & Millichap’s National Office Property Index for 2015, down nine places compared to last year. The real estate company docked the market points due to a surge in speculative construction.

Although a large amount of space will come online on the market, leasing is expected to be strong in the Los Angeles area, with the average vacancy rate set to dip by about 90 basis points. According to Marcus & Millichap’s market forecast, 2015 will see the average vacancy rate stand at around 14.2 percent.

In 2014, properties in Los Angeles were acquired for an average per-square foot rate of $262, an increase of just one percent compared to the previous 12 months. Cap rates stood in the low-6 percent range, with the downtown area and West L.A. clocking in first-year returns closer to the 5 percent rate.


Chart courtesy of Marcus & Millichap