Office Stats Run Red, But Improved

LOS ANGELES, CA-The L.A. County office market has displayed a mixed bag of results in the third quarter, posting negative net absorption but improving from the third quarter a year ago, according to a research report by Insignia/ESG.

Overall net absorption totaled nearly 170,000 sf in the county’s more than 167 million sf of office space in the eight major markets and several dozen submarkets tracked by Insignia/ESG.

But the absorption figure improved markedly from the third quarter of 2001, when it was a negative 1.5 million sf. The trend suggests that absorption “is now on the upswing and should push back into positive territory in early 2003,” the Insignia report says.

Few companies are expanding their offices these days, but activity did increase during the second part of the third quarter, according to Todd Doney, an executive managing director in the downtown L.A. office of Insignia.

“During the beginning of the third quarter it was universally agreed within the industry that activity was slow, but it has picked up since then,” Doney tells GlobeSt.com. “We are certainly seeing more activity in our landlord listings than we did during the end of the second quarter and the beginning of the third quarter.”

On the tenant side, Doney says, activity consists mainly of renewals, with few companies expanding or moving. He tells GlobeSt.com, “Most companies are being very prudent about capital expenditures right now, so even if a tenant can get a better economic deal by moving, the deal has to be extremely good to justify the capital costs that aren’t covered by the T.I. allowances.”

Of the eight major markets tracked by Insignia, four posted positive absorption (Downtown, Wilshire Corridor, the San Fernando Valley and Conejo Valley) and four posted negative numbers (Tri-Cities, West Los Angeles, the South Bay and Santa Clarita).

The Tri-Cities market accounted for by far the largest percentage of the negative net absorption, more than 277,000 sf. Doney says most of that resulted from Disney vacating about 300,000 sf of space, 200,000 sf of it in a feature animation building that is available for sublease and 100,000 sf in an office building where the entertainment company’s lease expired. In contrast to this year, absorption was only a negative 8,000 sf in the Tri-Cities market for the third quarter of last year.

Many companies today are signing three- and five-year leases instead of the five- and 10-year leases of just a few years ago, Doney says, but he adds that some firms are taking advantage of the market by locking in rates for the long term.

“We have clients that are doing 10- and 12-year leases,” he tells GlobeSt.com, “Their position is that they’ve been in business for years and years, they’re going to continue to be in business, and this an opportune time to make a long-term commitment.”