The West Los Angeles market saw rising rental rates highlight- ... many companies fall into that category in order to oc
Research & Forecast Report
West Los Angeles | OFFICE Q3 2016
Accelerating success.
>> West Los Angeles Rents Continue Upward Push Key Takeaways
> The average asking monthly rent for West Los Angeles continued increasing at a torrid pace, recording at $4.28 Full Service Gross (FSG) per square foot (PSF), a 7.0% increase year-over-year. > Absorption gains were again minimal for the market mirroring the previous 2 quarters in 2016. Totaling just 33,000 SF in positive absorption, vacancy remained unchanged at 12.1%. > Investment sales witnessed a flurry of activity during second quarter with just under 2.0 million SF trading hands. > Leasing activity recorded 1,277,800 SF and outperformed the average for the last 10 quarters by 9%. > West Hollywood and Marina Del Rey/Venice saw the largest drops in vacancy, recording deltas of -420 and -260 basis points respectively.
Market Indicators | Relative to prior period Q3 2016
Forecast
Vacancy Net Absorption Construction Rental Rate
Summary Statistics | West Los Angeles, Q3 2016 Class A
Class B
All Classes
13.1%
8.4%
12.1%
0
10
0
6.6
18.2
33.0
Vacancy Rate Change from Q2 ‘16 (Basis Points)
Net Absorption* Construction Completions* Under Construction*
0
26.0
26.0
1,097.4
100.0
1,197.4
*SF, Thousands
West Los Angeles Office Market
The West Los Angeles market saw rising rental rates highlighted by increases year-over-year of at least 6.7% for both Class A and the overall market. However, vacancy levels remained flat for the third straight quarter at 12.1%. Absorption gains were concentrated in the Marina Del Rey/Venice, West Hollywood and Century City submarkets. Leasing activity, while slightly lower than what the market has seen as of late, still surpassed 1.0 million SF. The West Los Angeles market is poised to add just under 1.2 million SF in the near future as construction and creative conversions deliver. For companies looking to expand or relocate into more modern properties, these new deliveries will be highly sought after. What remains to be seen is how many companies fall into that category in order to occupy new supply.
Asking Rents | West Los Angeles, Q3 2016 Average Asking Rent Change from Q2 ‘16 ($)
Class A
Class B
All Classes
$4.32
$3.87
$4.28
$0.05
$0.09
$0.06
6.7%
3.2%
7.0%
Y.O.Y. Change (%)
Labor Force | Los Angeles County, Q3 2016 Total Nonfarm
Prof. & Business Services
Financial Activities
12-mo Employment Growth (%)
1.7%
3.1%
2.4%
12-mo Actual Employment Change
73,900
18,600
5,100
West Los Angeles | OFFICE
Historical Vacancy v. Rents | West Los Angeles Office
Market Q3 ‘12-’16
> Six out of the eleven West Los Angeles submarkets saw drops in vacancy, which effectively cancelled out a lack of demand in the other submarkets..
$3.40
8%
$3.30 $3.20
6%
$3.10 $3.00
4% 3Q12
3Q13
> Rents increased in all submarkets, except for Miracle Mile (-$0.01 PSF), Marine Del Rey/Venice (-$0.02 PSF) and Brentwood (-$0.04 PSF). > Forecast: Rental rates will continue to rise, albeit at a slower pace, through the remainder of 2016.
3Q15
3Q16
Net Absorption by Submarket | West Los Angeles Office 200,000 145,300
150,000
119,200
100,000 50,000
69,200 28,400
13,100 1,800
0 (13,600)
(50,000)
(19,200) (29,000) (52,800)
(100,000) (150,000) (200,000) (250,000)
BEVERLY HILLS
MARINA DEL REY/VENICE
SANTA MONICA
BRENTWOOD
(229,400)
Historical Leasing Activity | West Los Angeles Office Market Q3 ‘12 - ‘16 1,900,000 1,700,000 1,500,000 1,300,000
SF
> The divide between Class A and B rents widened by $0.04 PSF as Class A rents jumped $0.05 while Class B jumped by $0.09 PSF. This is partially due to newer or renovated Class B inventory that are asking at traditional Class A rent levels.
3Q14
Market Q3 ’16
Rental Rates
> Overall monthly asking rental rates continued their upward ascent into the mid-$4.00 PSF range despite stagnation in demand. The current overall rental rate of $4.28 PSF is the high-water mark since Colliers started tracking rents in 2005.
% VACANT (TOTAL)
10%
$3.50
WEST LOS ANGELES
> Forecast: Despite negative absorption in Santa Monica due to smaller move-outs and renewal/downsizes, West Los Angeles should continue to see slightly positive demand in the near future, as it remains the premier market for the media and technology industries in Greater Los Angeles.
$3.60
OLYMPIC CORRIDOR
> Among the major move-ins for the quarter were ICM occupying 108,300 SF at 10250 Constellation Blvd. in Century City, WeWork landing in 46,200 SF at the newly completed 925 N. La Brea Ave. in West Hollywood and Providence Healthcare occupying 33,800 SF at 12555 Jefferson Blvd. in Playa Vista.
12%
$3.70
WESTWOOD
> Ares Capital signed one of the largest office leases in West Los Angeles, agreeing to occupy 97,000 SF at 800 Corporate Pointe in Culver City. Software giant Oracle closely followed, signing a 92,400 SF renewal at 1620 26th St. in Santa Monica.
14%
$3.90 $3.80
CENTURY CITY
> Absorption recorded at 33,000 SF. Leasing activity recorded at 1,277,800 SF, a year-over-year increase of 13.7%.
16%
$4.00
CULVER CITY
Absorption and Leasing Activity
18%
$4.10
$ PSF FSG PER MONTH (WEIGHTED)
> Forecast: Vacancy is expected to continue to slowly decline as space in Santa Monica gets backfilled and full floor space options in Century City are shrinking.
VACANCY
$4.20
SF
> Vacancy for the market was the lowest since the 10.3% last seen in fourth quarter of 2008.
RENTS
$4.30
WEST HOLLYWOOD
> The overall vacancy rate for West Los Angeles remained at 12.1%, the same as the past two quarters.
MIRACLE MILE
Vacancy
Q3 2016
1,100,000 900,000 700,000 500,000 300,000 100,000 3Q12
2
3Q13
3Q14
3Q15
3Q16
West Los Angeles | OFFICE
> Construction deliveries totaled 26,000 SF for the quarter. 3640 Holdrege Ave., in Culver City delivered to the market during third quarter.
Historical Net Absorption & Construction Completions West Los Angeles Office Market Q3 ‘12-’16 NET ABSORPTION
> Tishman Speyer’s Brickyard in Playa Vista and 316-326 S. Lincoln Blvd in Santa Monica are expected to be completed in fourth quarter 2016.
600,000 400,000 200,000
(200,000) (400,000)
> Forecast: West Los Angeles constitutes 29% of new construction in LA County; robust construction activity will persist through 2016. Several projects, from expansive ground-up projects, such as the aforementioned Brickyard, to creative conversions like the Pen Factory will provide a consistent source of new inventory going forward.
Investment Trends
(600,000) (800,000) (1,000,000) (1,200,000) 3Q12
> Forecast: The Federal Reserve’s interest rate increase at the end of 2015 did little to dampen investment activity in mid2016. This trend should continue through the end of the year, as Jamestown’s Lantana office complex in Santa Monica is under contract and Vornado Realty Trust takes 800 Corporate Pointe in Culver City to market.
Although market activity slowed, the outlook for the West Los Angeles market is positive. It remains the premier market for high-image media, entertainment and tech companies. Rental rates are expected to increase as newer product comes to market, while Santa Monica landlords demonstrate confidence in fundamentals by not getting aggressive with asking rents despite the large blocks of space available.
3Q15
3Q16
Average Price PSF
Cap Rate
$700
8
$600
7 6
$500
5 $400 4 $300 3 $200
2
$100
1
$-
0 2010
2011
2012
2013
2014
2015
2016
Unemployment Rate | U.S., CA & Los Angeles County | August 2016 5.6%
Outlook
3Q14
West Los Angeles Office Market Q3 ‘12-’16
$/PSF
> After its 5-building purchase from Blackstone in the Brentwood area, Douglas Emmett stayed active in third quarter, purchasing both 12100 Wilshire Blvd. from Hines and 233 Wilshire Blvd. from Blackstone. The Qatar Investment Authority, like before, was also a JV partner for both purchases.
3Q13
Investment Trends Chart
> Investment activity for properties over 25,000 SF was robust in the third quarter, recording $1.1 billion of investment sales volume. > The largest investment sale to highlight was Bostons Properties’ 50% interest purchase of the 6 building Colorado Center from Blackstone. TIAA-CREF will stay on as the capital partner.
0
SF
> The West Los Angeles construction pipeline remains full, as the market awaits the arrivals of Lincoln Property Company’s Pen Factory in Santa Monica and IDS Real Estate Group’s C3 development in Culver City. Both will deliver in early 2017.
CONSTRUCTION COMPLETIONS
800,000
5.5%
5.4% 5.2% 5.0%
4.9%
4.9%
4.8% 4.6% 4.4% United States
3
Cap Rate
Construction
Q3 2016
California
Los Angeles County
West Los Angeles | OFFICE
Q3 2016
Market Description
West Los Angeles is a moderately large office market comprised of 56.2 million SF, representing 19% of the total office space in buildings 25,000 SF and greater in the Los Angeles Basin. It is also a moderately young and dense market, with 40% of its space built in 1985 or later, and 70% of its space contained within mid-rise and high-rise buildings. It has a large concentration of high-margin firms (including those in the entertainment, digital media, software, and finance sectors), and is situated in the midst of some of the most affluent neighborhoods nationally.
Submarket Map
RECENT TRANSACTIONS & MAJOR DEVELOPMENTS West Los Angeles Office Market Q3 2016
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
Colorado Center, Santa Monica (6 bldgs.)
1,125,800 SF
$513,150,000
$911 PSF
Boston Properties, Inc.
The Blackstone Group LP
12100 Wilshire Blvd., Brentwood
365,000 SF
$225,000,000
$616 PSF
Douglas Emmett /Qatar Inv. Auth.
Hines
Playa Jefferson., Playa Vista (2 Bldgs.)
195,800 SF
$165,000,000
$842 PSF
Rockwood Capital LLC
Vantage Property Investors LLC
233 Wilshire Blvd.,Santa Monica
128,900 SF
$139,500,000
$1,082 PSF
Douglas Emmett /Qatar Inv. Auth.
The Blackstone Group LP
3415 S. Sepulveda Blvd., Los Angeles
179,300 SF
$68,200,000
$380 PSF
The Swig Company
KBS Realty Advisors
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
800 Corporate Pointe, Culver City
97,000 SF
Direct
A
Ares
Vornado Realty Trust
1620 26th St., Santa Monica
92,400 SF
Renewal/Expansion
A
Oracle
JP Morgan Chase
10250 Constellation Blvd., Los Angeles
34,300 SF
Direct
A
Fox Rothschild, LLP
JMB Realty
2000 Avenue of the Stars., Los Angeles
29,900 SF
Renewal
A
UBS
JP Morgan Chase
750 San Vicente Blvd., Los Angeles
25,900 SF
Direct
A
Critical Content
Cohen Brothers Realty Group
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
The Brickyard (2 bldgs)
Tishman Speyer
494,400 SF
Marina Del Rey/Venice
Under Construction
Q4 2016
5800 Bristol Pkwy., Culver City
IDS Real Estate Group
281,000 SF
Culver City
Under Construction
Q2 2017
2701 Olympic Blvd., Santa Monica
Clarion Partners
222,000 SF
Santa Monica
Under Renovation
Q2 2017
1041 N. Formosa Ave., West Hollywood
CIM Group
100,000 SF
West Hollywood
Under Construction
Q2 2017
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
West Los Angeles | OFFICE
Q3 2016
OFFICE OVERVIEW
West Los Angeles Office Market Q3 2016
EXISTING PROPERTIES Submarket/ Bldgs Class
Total Inventory SF
VACANCY Direct Sublease Total Vacancy Vacancy Vacancy
ACTIVITY Total Vacancy Prior Qtr
Leasing Activity Current Qtr SF
Leasing Activity YTD SF
ABSORPTION Net Absorption Current Qtr SF
Net Absorption YTD SF
CONSTRUCTION
RENTS
Completions Current Qtr SF
Under Construction SF
Weighted Avg Asking Lease Rate $4.32
A
235
44,581,000
12.1%
1.0%
13.1%
13.1%
1,007,200
2,678,700
6,600
147,100
0
1,097,400
B
181
10,942,300
7.8%
0.5%
8.4%
8.3%
259,400
627,700
18,200
127,600
26,000
100,000
$3.87
C
19
735,100
2.0%
0.3%
2.4%
3.5%
11,200
17,800
8,200
1,300
0
0
$2.67
20
10,594,100
10.3%
0.7%
10.9%
11.6%
233,600
661,200
69,200
89,400
0
0
$4.58
9,210,900
15.0%
1.6%
16.5%
14.0%
218,400
493,400
(229,400)
(304,200)
0
247,000
$4.85
72
6,815,500
10.9%
0.9%
11.8%
11.0%
122,600
304,300
(52,800)
(187,200)
0
0
$5.17
25
5,279,500
10.8%
0.1%
10.9%
10.7%
99,300
312,100
(13,600)
104,900
0
0
$3.90
27
4,743,100
11.8%
0.1%
11.9%
11.5%
50,300
187,700
(19,200)
14,600
0
0
$4.29
48
3,726,300
9.6%
1.3%
10.9%
11.0%
149,500
246,400
28,400
215,900
26,000
281,000
$3.26
CENTURY CITY Subtotal
SANTA MONICA Subtotal
102
BEVERLY HILLS Subtotal MIRACLE MILE Subtotal WESTWOOD Subtotal CULVER CITY Subtotal
MARINA DEL REY/VENICE Subtotal
53
5,522,200
12.0%
2.9%
14.9%
17.5%
165,100
431,300
145,300
215,400
0
494,400
$3.66
20
3,370,100
7.8%
0.8%
8.7%
9.1%
89,200
224,900
13,100
(30,900)
0
0
$4.02
3,301,100
2.3%
0.2%
2.4%
2.5%
65,700
203,200
1,800
7,900
0
0
$3.83
2,846,000
13.4%
0.1%
13.5%
17.7%
73,900
207,300
119,200
181,600
0
175,000
$4.48
849,600
20.8%
0.0%
20.8%
17.4%
10,200
52,400
(29,000)
(31,400)
0
0
$3.00
56,258,400
11.1%
0.9%
12.1%
12.1%
1,277,800
3,324,200
33,000
276,000
26,000
1,197,400
$4.28
BRENTWOOD Subtotal
OLYMPIC CORRIDOR Subtotal
27
WEST HOLLYWOOD Subtotal
31
WEST LOS ANGELES Subtotal
10
MARKET TOTAL Total
435
Note: revisions to the inventory base were made effective Q3 2016, historical data reported here reflect these revisions and may not match data reported in previous quarters.
5
West Los Angeles | OFFICE
Definitions of key terms in this report Total Rentable Square Feet: Office space in buildings with 25,000 square feet or more of speculative office space. Includes competitive space in Class A, B and C single-tenant and multi-tenant buildings. Excludes non-competitive owner-occupied buildings, buildings that include 30 percent or greater of medical or retail space, and space that is under-construction, underrenovation or off-market. Class A Space: Space that an image-conscious company would lease for its headquarters. Typically, this space has a very high level of finish and an excellent location, and commands the highest rents in the market. Class B Space: Highly functional, attractive space, but less prestigious than Class A Space, and commanding lower rental rates. Class C Space: Functional, competitive space, but with a lower level of finish and/or a less desirable location than with Class B Space, and commanding lower rental rates. Low-Rise: Buildings with a total of 4 floors or less. Mid-Rise: Buildings with a total of 5 to 13 floors. High-Rise: Buildings with 14 or more floors. Direct Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease, plus space that is vacant but not available for direct lease or sublease (for example, that is being held for a future commitment). Total Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease or for sublease, plus space that is vacant but not available for direct lease or sublease. Net Absorption: Net change in occupied square feet from one period to the next (includes the impact of change in vacant space available for sublease). Leasing Activity: Square feet leased from all known transactions completed during the quarter. Excludes lease renewals. Weighted Average Asking Rental Rates: Weighted by the total square feet available for direct lease. Data is based on Full Service Gross rents, and includes all costs associated with occupying the space, including taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per SF basis. 6
Q3 2016 Space Added (Net): Total square feet added during the quarter via construction completions, including renovated space returned to market, less total square feet taken off-market due to demolitions or conversions. Under Construction: Includes buildings that are in some phase of construction, beginning with foundation work and ending with the issuance of a Certificate of Occupancy Technical Note: Colliers International is continuously refining its database. The data shown in the historical tables and graphics in this report have been adjusted to take into account these changes in the database. This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This report and other research materials may be found on our website at www.colliers.com/greaterlosangeles.
554 offices in 66 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112
> $2.5 billion in annual revenue > 2.0 billion square feet under management > Over 16,100 professionals
UNITED STATES: Downtown LA Office License No. 01908231 865 S. Figueroa St., Ste. 3500 Los Angeles, CA 90017
HANS MUMPER
Executive Managing Director
CHRIS WONG
Regional Research Analyst Research Services
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CAITLIN MATTESON Research Director Research Services
