In a sign that the economic slowdown is affecting Southern California businesses, the rents on office space are down slightly over last year, and vacancy rates are up.
In some parts of the region, office buildings that once housed mortgage lenders and other housing-related businesses stand 20% empty, according to brokerage Cushman & Wakefield. Even in desirable Santa Monica, vacancies have almost doubled as companies have shunned the coastal area's still-pricey digs in favor of cheaper rents elsewhere in the region.
Experts say the decline in rents and the jump in vacancies portend trouble, even in those parts of the region -- such as L.A.'s Westside -- where the market is still relatively stable.
"Santa Monica and the surrounding area have been ground zero for digital media," said David Toomey of real estate brokerage Cresa Partners. "But in the last year or two, the spike in rental rates and lack of product has caused a lot of sizable digital media companies to move out, and look outside the Westside."
Fox Interactive Media, the home of MySpace, announced this year that it was moving to a 300,000-square-foot headquarters in Playa del Rey. PriceGrabber.com Inc. is moving from Westwood to Fox Hills. And a handful of other smaller start-ups are unable to be in Santa Monica at all, Toomey said. They're going instead to Marina del Rey, Venice, Culver City or places farther afield.
The amount of rented office space in Los Angeles County has fallen by 1.3 million square feet this year.
That's a small fraction of the roughly 189 million square feet available in the county, but last year at this time the county had a net gain of more than 2 million square feet.
Altogether, Los Angeles County had a vacancy rate of 11.6% including sublease space at the end of the third quarter, up slightly from 9.5% a year ago.
"We are certainly going to see vacancy rates go up as we go into this economy," said Joe Vargas, regional manager of Cushman & Wakefield. "Rental rates will be slow to adjust down, but we are going to see it happen."
The situation is worse in Orange County, where office vacancy rates rose to 16.2% in the third quarter from 11% a year ago, spurred in large part by the closing of several lenders that specialized in subprime mortgage loans. In the buildings around John Wayne Airport, however, vacancy has surpassed 20%.
