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Realty group predicts some 30% cuts in L.A. office rents

Continuing job cuts will leave empty space in the first half of the year, Grubb & Ellis says. Vacancy rates in the county jumped to 12.2% at the end of 2008 from 9.7% a year earlier.

January 15, 2009|Bloomberg News

Los Angeles office landlords will probably be forced to slash rents as much as 30% in the first half of the year as job cuts create more empty space, Grubb & Ellis Co. said Wednesday.

Office vacancy rates in Los Angeles County jumped to 12.2% at the end of 2008 from 9.7% a year earlier, the Santa Ana broker said.

"Southern California counties got caught in the economic whirlwinds of 2008, and there will be little or no letup in 2009," said Jack Kyser, an economist who worked on the report.

California, the most populous U.S. state, is forecast to record a 1% decline in non-farm employment this year, according to Grubb & Ellis.

The state is being hit hard by the U.S. real estate slump and the recession, which will cause the U.S. economy to shrink 1.5% this year, according to the median forecast in a Bloomberg News survey.

In Orange County, office rents will probably drop 10% over the next 12 months, Grubb & Ellis predicted. The overall vacancy rate likely will "hold steady at 20%," compared with 12.5% a year ago. In the Inland Empire, east of Los Angeles, the rate will probably rise to more than 24% this year, up from 11.9% a year ago, the broker said.

Nationwide, the office vacancy rate increased to 14.8% in the fourth quarter from 13% a year earlier. That's the highest rate since the third quarter of 2005, when it was 15.1%, Grubb & Ellis said. Annual rents for Class A office space -- space in top-tier buildings -- dropped to $35.80 a square foot from $36.38 a year earlier.

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