Southern California office rents will continue to rise next year as steady gains in the economy encourage employers to expand, further pushing down vacancy rates, according to a forecast released Thursday.
"Stable job growth has helped to reduce office vacancy rates and raise rents throughout the region," said Dolores Conway, director of the annual Casden Real Estate Economics Forecast released by the USC Lusk Center for Real Estate. "Lease renewals reflect the positive outlook of business owners across diverse industries."
Rents are rising in all parts of Los Angeles County, the forecast said. San Fernando Valley rates are growing fastest, with a 20% increase over last year because multiple tenants are competing for high-quality office space.
West Los Angeles -- with its concentration of entertainment, technology and media tenants -- experienced the greatest absorption of space this year and commands the region's highest monthly rents at $2.79 a square foot.
Vacancy rates have dropped substantially throughout the Los Angeles Basin. In downtown L.A., vacancy fell to 15.6% in the third quarter from more than 19% a year earlier. That's the tightest downtown has been since the mid-1980s, when a massive office building boom got underway.
Helping drive downtown leases are two $1-billion developments: the LA Live entertainment complex under construction near Staples Center and the planned Grand Avenue mixed-use project on Bunker Hill, the report said.
Overall vacancy rates in Los Angeles County should fall slightly next year to about 11% from 12.2% now, while average monthly rents, now at $2.52 a square foot, should inch up about 5%, the report said.
In Orange County, the area around John Wayne Airport in Newport Beach and Irvine is the dominant market with rents at $2.66 a square foot, an increase of almost 13% from a year ago. With vacancy at 8%, developers are starting construction on several office towers. Countywide, vacancy should fall to 7% next year and rents could climb as much as 6% more, the report said.
The Inland Empire will continue to be California's fastest growing urban area over the next 10 years, gaining 10,000 residents a year through 2010, the report said. The office vacancy rate in the Ontario Airport area fell to a tight 4.5% last quarter from 8% a year earlier as high-tech firms and businesses that want to be near the airport absorbed space.
"Many companies in the past few years have opened new offices or moved to the Inland Empire from Los Angeles, Orange and San Diego counties to accommodate shorter commutes and more affordable housing for employees," Conway said.