Demand shifts to creative space
Los Angeles Office Market @ Q2 2013
The Los Angeles office market experienced another quarter of negative net absorption and rising vacancy, despite moderate economic growth, and job creation in office-related employment sectors. In the second quarter, demand for office space fell with overall occupancy declining by -718,600 square feet market-wide, and the vacancy rate rose by 60 basis points to 18.1 percent. Following consistently positive demand in 2012, the market appears to have changed course in the first half of 2013. The combination of 1.1 million square feet of space givebacks and delivery of 800,000 square feet of new construction pushed vacancy above the previous peak of 17.5 percent reached in mid-2011.
At this stage in the recovery, we should be witnessing at minimum moderate demand for office space. Technology, media and energy industries are in their growth phase hiring workers and making capital investments for the future. In addition, much of the downsizing of professional service, finance and legal firms has already taken place. These traditional office occupiers have emerged from the recession flush with cash, and more profitable than ever before. Why have these trends failed to produce a healthier office market? The answer may lie within the structural shift that has already taken place in occupiers’ demand for real estate.
Technology has changed the way knowledge workers function within the office environment. Physical files, servers and desktops have given way to cloud computing and mobile devices reducing the amount of space needed per employee. The office remains a space in which a company operates, but it must still contribute to the bottom line, as well as inspire and attract the best employees. Firms are seeking open and collaborative work environments in amenity-rich locations, while traditional Class A high-rise and sterile suburban office parks have fallen out of favor. Evidence of these trends can be observed in the latest quarterly statistics.
