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Market Information: LA/Orange County

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Economy:  Mid-Year 2009 

Basin Economy: Further Weakening

The LA Basin economy lost 319,000 payroll jobs over the 12 months ending April 2009. Los Angeles lost the most jobs, 167,900, in that time period.  Employment in the Inland Empire declined by 78,500 over the 12 months ending April 2009, while Orange County shed 72,600 jobs.

The LA Basin unemployment rate rose to 10.8% in April 2009 from 5.8% a year ago. Regional unemployment exceeded the national average of 8.9% in April 2009, as the layoffs that started in Orange County’s lending and housing industries have spurred contraction in sectors throughout the region.  The national unemployment rate rose to 9.4% in May 2009.

Office Market:  Mid-Year 2009

Los Angeles: Continued Contraction

Los Angeles County continues to maintain one of the lowest office vacancy rates in the nation at the 2nd quarter of 2009, although the rate has risen steadily since the end of 2007.  In addition, LA County is shedding jobs, causing demand for office space to wane and rental rates to decline.  Pre-leasing for projects under construction remains steady, but investment sales volume and prices have declined.

Highlights:

• Net absorption of office space totaled negative 1.6 million SF in LA County in the 2nd quarter of 2009 and negative 5.6 million SF year-to-date.  This compares to negative 2.9 million in all of 2008.
• Available LA County sublease space totals 3.8 million SF at the end of the 2nd quarter, a decrease of 68,000 SF from the 1st quarter of 2009.  Available sublet space represents 1.1% of standing inventory.
• LA County’s overall vacancy rate increased to 11.5% at 2nd quarter 2009, from 10.8% at 1st quarter 2009 and 8.5% a year ago. The direct office vacancy rate rose to 10.4% in LA County at the 2nd quarter 2009, compared to 9.6% at 1st quarter 2009 and 7.5% one year ago.
• There is 3.3 million SF of office space under construction or renovation in LA County at the 2nd quarter of 2009, down from 4.6 million SF at 1st quarter 2009 and 8.5 million SF a year ago.  38% was pre-leased at 2nd quarter 2009, compared to 35% the previous quarter and 33% one year ago.
• Eleven buildings totaling 1.3 million SF of office space delivered in LA County in the 2nd quarter of 2009, at 7.5% leased upon delivery.  This compares to 731,597 SF delivered in the 2nd quarter of 2008 at 62.2% pre-leased.  In 2008, deliveries totaled 3.2 million SF at 55% pre-leased.
• LA County office rents fell by approximately 2.5% during the 1st half of 2009. Average Class A office rents decreased at a rate of 2.8% during the same time period.
• Office investment sales volume in LA County totaled $45.1 million in the 2nd quarter of 2009.  In comparison, sales totaled $245.0 million the previous quarter and $3.7 billion for all of 2008.  The average sale price fell to $171/SF in the 2nd quarter of 2009, compared to $220/SF in the 1st quarter and $323/SF in all of 2008.

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Orange County: Market Continues to Contract

The Orange County office market continues to suffer from the collapsed credit markets, a struggling home-building industry, and the nation’s economic slowdown.  Orange County shed 72,600 jobs in the 12 months ending April 2009, which in turn has caused office vacancy rates to rise.  Developers have halted groundbreakings on new office space, and the construction pipeline is near its lowest level since mid-year 2004.  Investment sales volume is a fraction of the 2007 total, as investors remain wary of Orange County’s eroding market fundamentals.

Highlights:

• Net absorption of office space in Orange County was 18,000 SF in the 2nd quarter of 2009, following seven consecutive quarters of negative net absorption.  Through mid-year 2009, net absorption of office space in Orange County is negative 801,000 SF, compared to negative 2.0 million SF in all of 2008.
• Available sublease space fell by 27,000 SF in the 2nd quarter of 2009 and represents 1.0% of standing inventory.
• Orange County’s overall office vacancy rate dropped slightly to 14.1% from 14.2% in the previous quarter but rose from 12.9% a year ago.  Orange County’s vacancy rate exceeds the national average of 13.6%.  The direct office vacancy rate in Orange County remained the same from 1st quarter of 2009 at 13.1%, but up from 10.9% at mid-year 2008.
• There is 272,100 SF of office space under construction or renovation in Orange County in the 2nd  quarter of 2009, up from 250,400 SF the previous quarter but down from 372,000 SF at mid-year 2008. Groundbreakings remain near their lowest point since mid-year 2004 as a result of the credit crunch and concern about adding more space to a market under pressure.  The space under construction or renovation in the 2nd quarter of 2009 is 33% pre-leased, up from 32% the previous quarter but down from 52% one year ago.
• Office deliveries in Orange County, including renovations, totaled 522,414 SF in the 2nd quarter of 2009, compared to 139,000 SF in the 1st quarter of 2009 and 2.3 million SF delivered in all of 2008.  Space delivered in the 2nd quarter of 2009 was 84% leased upon delivery.
• After falling 6.3% during 2008, asking rents for all classes of office space in Orange County fell by 5.4% during the 1st half of 2009. Class A rents dropped by 6.0% during the same period.
• Office investment sales volume in Orange County totaled $67 million in the 2nd quarter of 2009, compared to $33 million in the 1st quarter of 2009 and $852 million for all of 2008. Office sale prices averaged $256/SF in Orange County, an 11.0% decrease from the $289/SF during the 1st half of 2008.

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Flex/R&D Market:  Mid-Year 2009

Demand: Down in LA and OC

In the 2nd quarter of 2009, demand for Flex/R&D space was negative in both Los Angeles County and Orange County.  LA County had one strong submarket (Downtown/Tri Cities) with positive 25,000 SF of absorption, but the remainder of the county and all of Orange County experienced negative absorption.

• Net absorption by county:
  • Los Angeles County    (268,000) SF
  • Orange County             (517,000) SF
• Available Flex/R&D sublease space in LA and Orange counties decreased to 634,000 SF in the 2nd  quarter of 2009, compared to 790,000 SF in the 1st quarter 2009. Sublease space represents just 0.5% of the standing inventory in LA and Orange counties.

To view and/or download the most recent snapshot report in an Adobe Acrobat file, click here.

To view and/or download a full sample report in an Adobe Acrobat file, click here.

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