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Office Vacancy Rate Continues to Rise in L.A.

Market: Weak demand pushes availability up to 16.29% in first quarter as tenants are reluctant to sign long-term leases.

April 16, 2002|JESUS SANCHEZ | TIMES STAFF WRITER

The greater Los Angeles office market continued to weaken during the first quarter as the vacancy rate rose in nearly all districts and most tenants remained reluctant to sign long-term leases, brokers said.

The overall office vacancy rate rose to 16.29%, up from 15.45% at the end of 2001, said a report by Insignia/ESG, a commercial real estate brokerage and services firm. The vacancy rate was up substantially from the first quarter last year, when it stood at 12.65%.

"The [first quarter] activity was horrible," said Bruce Schuman, a broker at real estate services firm Julien J. Studley Inc.

The average asking monthly rent of $2.28 a square foot remained unchanged from year-ago levels, according to Insignia/ESG. However, landlords have been offering a growing number of concessions to tenants--such as a period of free rent--that can result in substantial savings from formal asking rents, local brokers said.

Concessions have become more common as landlords face a growing pool of vacant space and tenants who are subleasing space at bargain rents.

During the first quarter, the inventory of office space that became vacant or available for lease rose by about 625,000 square feet, according to Insigna/ESG.

"On a five-year deal, you might see three to seven months of free rent," said Nick Christensen, a CB Richard Ellis broker who specializes in the office market on L.A.'s Westside. "It's indicative of the climate."

After more than a year of weak demand, many office markets across the area posted vacancy rates above 20% during the first quarter, including Westwood, Marina del Rey, Hollywood, the western San Fernando Valley and the Los Angeles International Airport area, according to Insignia/ESG.

In the Tri-Cities market, which consists of Burbank, Glendale and Pasadena, many recently completed or soon-to-be-completed office buildings stand empty, brokers said.

"There are just not a lot of [tenants] floating around looking for space," said broker Nico Vilgiate at Insignia/ESG.

Despite the lackluster first quarter, there were some signs that the market was approaching a bottom. Some brokers reported an increase in inquiries from prospective tenants as landlords have increased concessions and the economy shows signs of a turnaround.

There were even some promising signs in the once highflying Westside office market, which was hit hard by the dot-com bust and retrenching entertainment and high-technology firms.

During the first quarter, the amount of available and vacant space grew by more than 57,000 square feet--substantially less than in previous quarters, when that figure often soared above 500,000 square feet.

"While available space is increasing ... it looks like the worst is behind us," said Kevin Morrow, head of research in Los Angeles for Insignia/ESG.

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