Office Vacancy Rates Show Drop : West Los Angeles, Orange County Most Active Markets

July 27, 1986

Absorption of commercial space throughout Southern California exceeded expectations during the first half of 1986, a newly released study by Grubb & Ellis shows.

Forecasters generally had expected otherwise but office vacancy rates in most of the southland dropped markedly.

"The doomsayers can make all the pronouncements they want, but the office markets in Southern California and elsewhere are a lot healthier than many would lead us to believe," said Phillip D. Royster, the realty firm's senior vice president and regional manager of commercial brokerage services.

"In fact, we were surprised when our research staff came to us with their findings for the las two quarters."

At the end of June, the overall vacancy rate was 18%; by year's end, that will likely increase by only one or two percentage points, Royster predicted.

Absorption at midyear stood at 6.8-million square feet, with Orange County, San Diego and downtown Los Angeles accounting for about 4.8-million square feet.

Largest Office Market

For diverse reasons, West Los Angeles and Orange County were the most active markets, according to the study.

The former, now the largest office market in the Southland--with 27 million square feet--has a current vacancy rate of 10%, lowest in the region. But Royster expects it will increase to about 12% over the next six months because of an increase in the amount of square footage now under construction and work to be completed by year's end.

About 1.6 million square feet of new space will be built by the end of the year but a "dwindling supply of developable land and the fear of slow- and no-growth legislation will continue to keep this marketplace the tightest in the region," the executive said.

The Orange County market's vacancy factor fell from 23% to 17% in the first half of the year, and unlike West Los Angeles, there is no lack of developable land, nor any significant no-growth legislation pending.

Expect Vacancy Rise

During the last six months, 2.1-million square feet of space was committed, topping all of the 1985 total of just 1.6-million square feet. Currently, there are 7.6-million square feet of construction under way, the largest amount of office space being built anywhere in the Southland. Of that total, 1.3-million square feet has been pre-leased.

"Vacancy levels in Orange County by year's end will again rise to 24% as another 3.7-million square feet come on line," Royster said. Totally, there now exist 23 million square feet, with 4.3 million square feet being vacant.

Vacancies in downtown Los Angeles also have dropped, from 17% to 15% in the first six months of 1986, he said, and if activity remains constant, the rate could drop even more.

Downtown vacancies totaled 3.6-million square feet from an existing base of 24-million square feet. Absorption rates ranged to 1-million square feet during the first six months, with an expectation that more than 700,000 square feet of new office space will be available by year's end.

Crush of Overbuilding

San Diego County recorded use of 1.5-million square feet of space during the first six months but its 26% vacancy rate showed little change from year-end. Unlike most other regions in the Southland, this area still bears the crush of overbuilding.

There is a base of 25-million square feet with 6.4-million vacant and 2-million square feet under construction.

San Diego may have reached a peak in its development cycle, Royster said, and developers "now must concentrate on filling the office space they have built so freely over the past three years."

Results of Survey

After surveying 2,000 buildings in Southern California, the Grubb & Ellis study showed:

--Overall asbsorption was 6.8-million square feet, more than half the total expected in 1986. Last year's absorption of 11 million square feet will be surpassed by about 600,000 square feet.

--A current overall 18% vacancy factor exists.

--About 23-million square feet of office space is now under construction, most of it in Orange County with 7.6-million square feet, and the least amount, 1.2-million square feet, in downtown Los Angeles.

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