44,400 SF as vacancy remained unchanged from last quarter at 12.1%. ... market for the media and technology industries i
Research & Forecast Report
West Los Angeles | OFFICE Q2 2016
Accelerating success.
>> West Los Angeles Sets New Highs for Rents Key Takeaways
> The average asking rent for West Los Angeles continued increasing at a torrid pace, recording at $4.22 Full Service Gross (FSG) per square foot (PSF), a 8.5% increase yearover-year. > Absorption gains were minimal for the market, totaling just 44,400 SF as vacancy remained unchanged from last quarter at 12.1%. > Investment sales witness a flurry of activity during second quarter with over 1.4 million SF trading hands while a number of properties still remain under contract.
Market Indicators | Relative to prior period Q2 2016
Forecast
Vacancy Net Absorption Construction Rental Rate
Summary Statistics | West Los Angeles, Q2 2016 Vacancy Rate
> Leasing activity recorded 1,030,500 SF, 84% of the average for the last 10 quarters.
Change from Q1 ‘16
> The Culver City submarket saw the high leasing totals of the past year pay off as absorption led the West Los Angeles market at 75,300 SF.
Net Absorption*
Class A
Class B
All Classes
13.1%
8.3%
12.1%
0
-30
0
23.4
25.2
44.5
(Basis Points)
Construction Completions*
64.0
0
0
Under Construction*
716.4
51.0
767.4
*SF, Thousands
West Los Angeles Office Market
The West Los Angeles market saw rising rental rates highlighted by 8.8% increases year-over-year for both Class A and the overall market. Vacancy levels remained flat during second quarter at 12.1%. Absorption gains were concentrated in the Culver City and Miracle Mile 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 1.0 million SF in the near future as construction and creative conversions deliver, satisfying demand for one of the stronger markets in the region.
Asking Rents | West Los Angeles, Q2 2016 Class A
Class B
All Classes
$4.27
$3.78
$4.22
$0.02
$0.07
$0.05
7.3%
3.0%
8.8%
Average Asking Rent Change from Q1 ‘16 ($)
Y.O.Y. Change (%)
Labor Force | Los Angeles County, Q2 2016 Total Nonfarm
Prof. & Business Services
Financial Activities
12-mo Employment Growth (%)
2.4%
2.1%
2.5%
12-mo Actual Employment Change
101,000
12,500
5,300
West Los Angeles | OFFICE
> The overall vacancy rate for West Los Angeles remained at 12.1% from last quarter.
Historical Vacancy v. Rents | West Los Angeles Office
Market Q2 ‘12-’16
> Culver City and Miracle Mile saw the largest drops in vacancy, with changes of -200 and -130 basis points respectively.
> Forecast: Vacancy is expected to continue to slowly decline as space in Santa Monica continues to get backfilled and full floor space options in Century City are shrinking.
Absorption and Leasing Activity
16%
$4.10
14%
$3.90 $3.80
12%
$3.70 $3.60
10%
$3.50 $3.40
8%
$3.30 $3.20
6%
$3.10 $3.00
4% 2Q12
2Q13
2Q14
2Q15
2Q16
Net Absorption by Submarket | West Los Angeles Office
Market Q2 ’16
> Among the major move-ins for the quarter were IPG occupying 143,300 SF at 1840 Century Park East. in Century City and Akin Gump relocated from 2029 Century Park East into 43,300 SF at 1999 Avenue of the Stars in Century City.
NET ABSORPTION
CONSTRUCTION COMPLETIONS
800,000 600,000 400,000 200,000 0
SF
> Forecast: West Los Angeles should continue to see positive absorption in the near future, as it remains the premier market for the media and technology industries in Greater Los Angeles.
18%
$4.00
> Absorption recorded at 44,500 SF, trailing the 10-quarter average of 257,210 SF by 17%. Six out of the eleven submarkets recorded positive absorption for the quarter. > Univision signed one of the largest office leases, agreeing to occupy 104,500 SF at 5999 Center Dr in Marina Del Rey after which CBRE Global Investors purchased the building.
VACANCY
$4.20
$ PSF FSG PER MONTH (WEIGHTED)
> Vacancy for the market was the lowest since the 10.3% last seen in fourth quarter of 2008.
RENTS
$4.30
% VACANT (TOTAL)
Vacancy
Q2 2016
(200,000) (400,000) (600,000)
> Overall rental rates continued their push into the mid-$4.00 range as landlords remain enthusiastic about the underlying fundamentals for the market. The current overall rental rate of $4.22 is the high-water mark since Colliers started tracking rents in 2005. > The divide between Class A and B rents widened by $0.14 as Class A rents jumped $0.02 while Class B jumped by $0.07. > Rents increased in all submarkets, except for Santa Monica (-$0.05) and Century City (-$0.08). > Forecast: Rental rates will continue to rise, albeit at a slower pace, through 2016. The Westwood submarket bears attention, as Douglas Emmett’s newfound share has the potential to dictate rates across the submarket.
(1,000,000) (1,200,000) 2Q12
2Q13
2Q14
2Q15
2Q16
Historical Leasing Activity | West Los Angeles Office Market Q2 ‘12 - ‘16 1,900,000 1,700,000 1,500,000 1,300,000
SF
Rental Rates
(800,000)
1,100,000 900,000 700,000 500,000 300,000 100,000 2Q12
2
2Q13
2Q14
2Q15
2Q16
West Los Angeles | OFFICE
> Construction deliveries totaled 64,000 SF for the quarter. 925 N La Brea Ave., in West Hollywood delivered to the market during second quarter. WeWork is to occupy floors 4-6.
Historical Net Absorption & Construction Completions West Los Angeles Office Market Q2 ‘12-’16 NET ABSORPTION
> Renovations for 3640 Holdrege Ave., in Culver City and 316-326 S. Lincoln Blvd in Santa Monica are expected to be completed in third quarter 2016.
600,000 400,000 200,000
(200,000) (400,000)
> Forecast: West Los Angeles constitutes 28% 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
0
SF
> The West Los Angeles construction pipeline remains full, as the market awaits the arrivals of Tishman Speyer’s Brickyard in Playa Vista and Lincoln Property Company’s Pen Factory in Santa Monica. Both will deliver in late 2016/early 2017.
CONSTRUCTION COMPLETIONS
800,000
(600,000) (800,000) (1,000,000) (1,200,000) 2Q12
2Q13
2Q14
2Q15
2Q16
Investment Trends Chart
West Los Angeles Office Market Q2 ‘12-’16
> Investment activity for properties over 25,000 SF picked up in the second quarter, recording $1.3 billion of investment sales volume, almost equaling 2015’s total of $1.6 billion.
Average Price PSF
Cap Rate
$700
8
> The largest investment sale to highlight was Alliance Bernstein L.P. purchase of a 5 building portfolio sale which included 4551-4553 Glencoe Ave., in Marina Del Rey.
$600
7
> Forecast: The Federal Reserve’s interest rate increase at the end of 2015 did little to dampen investment activity in mid-2016, and its aversion to drastic increases bodes well for activity through the end of the year.
$400
6
$500
$/PSF
5 4 $300 3 $200
2
$100
Outlook
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.
1
$-
0 2010
2011
2012
2013
2014
2015
2016
Unemployment Rate | U.S., CA & Los Angeles County | May 2016 5.3%
5.2%
5.2% 5.1% 5.0%
4.9%
4.9% 4.8% 4.7%
4.7%
4.6% 4.5% 4.4% United States
3
Cap Rate
Construction
Q2 2016
California
Los Angeles County
West Los Angeles | OFFICE
Q2 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 Q2 2016
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
4551 Glencoe Ave., Marina Del Rey (Portfolio of 5 Bldgs.)
803,634 SF
$153,000,000
$190 PSF
Alliance Bernstein L.P.
SteelWave, Inc.
5100 Goldleaf Cir., Los Angeles (Portfolio of 6 Bldgs.)
566,831 SF
$135,300,000
$238 PSF
LPC Realty Advisors I, Ltd.
Rockwell Capital LLC
5999 Center Dr., Los Angeles
174,084 SF
$102,000,000
$585 PSF
CBRE Global Investors Ltd.
Univision Communications, Inc.
200 Corporate Pointe, Culver City (Portfolio of 3 Bldgs.)
415,079 SF
$65,500,000
$157 PSF
Mitaa Investments, LLC
Broadreach Capital Partners
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
5999 Center Dr., Los Angeles
104,448 SF
Direct
A
Univision
CBRE Global Investors Ltd.
2701 Olympic Blvd., Santa Monica
86,000 SF
Direct
B
Awesomeness TV
Clarion Partners
1888 Century Park East, Los Angeles
75,341 SF
Renewal/Expansion
A
First Republic Bank
Equity Office Properities
3003 Exposition Blvd., Santa Monica
65,998 SF
Expansion
A
Beachbody
Jamestown
2772 Donald Douglas Loop, Santa Monica
47,343 SF
Direct
B
Snapchat
City of Santa Monica
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
2701 Olympic Blvd., Santa Monica
Clarion Partners
222,000 SF
Santa Monica
Under Renovation
Q2 2017
3640 Holdrege Ave., Culver City
Altemus Company
26,000 SF
Culver City
Under Renovation
Q3 2016
316-326 S. Lincoln Blvd., Santa Monica
Arris Investments LLC
25,000 SF
Santa Monica
Under Renovation
Q3 2016
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
West Los Angeles | OFFICE
Q2 2016
OFFICE OVERVIEW
West Los Angeles Office Market Q2 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
CONSTRUCTION
RENTS
Net Absorption Current Qtr SF
Net Absorption YTD SF
Completions Current Qtr SF
Under Construction SF
Weighted Avg Asking Lease Rate $4.27
A
234
44,581,000
12.1%
1.0%
13.1%
13.1%
847,600
1,671,500
23,400
117,100
64,000
716,400
B
181
10,916,300
8.0%
0.3%
8.3%
8.6%
178,500
368,300
25,200
84,100
0
51,000
$3.78
C
19
735,100
2.5%
1.0%
3.5%
2.9%
4,500
6,600
(4,200)
(2,700)
0
0
$2.70
20
10,594,100
11.1%
0.5%
11.6%
12.1%
153,800
427,600
51,000
(30,800)
0
0
$4.52
9,210,900
12.5%
1.5%
14.0%
13.6%
116,000
275,000
(39,200)
(35,600)
0
247,000
$4.75
72
6,815,500
10.3%
0.7%
11.0%
8.8%
129,800
181,700
(147,400)
13,000
0
0
$5.15
25
5,279,500
10.6%
0.1%
10.7%
12.0%
104,200
212,800
68,500
50,000
0
0
$3.91
27
4,743,100
11.5%
0.0%
11.5%
12.3%
98,600
137,400
40,000
(6,200)
0
0
$4.27
48
3,700,300
9.5%
1.5%
11.0%
13.0%
45,200
96,900
75,300
112,200
0
26,000
$3.22
CENTURY CITY Subtotal
SANTA MONICA Subtotal
102
BEVERLY HILLS Subtotal MIRACLE MILE Subtotal WESTWOOD Subtotal CULVER CITY Subtotal
MARINA DEL REY/VENICE Subtotal
52
5,522,200
14.8%
2.7%
17.5%
16.1%
155,000
266,200
(80,400)
150,500
0
494,400
$3.68
20
3,370,100
8.0%
1.1%
9.1%
8.7%
76,400
135,700
(11,000)
(33,000)
0
0
$4.06
3,301,100
2.4%
0.1%
2.5%
3.6%
63,100
137,500
35,600
(29,500)
0
0
$3.68
2,846,000
17.6%
0.0%
17.7%
17.8%
74,500
133,300
55,800
6,600
64,000
0
$4.45
849,600
17.4%
0.0%
17.4%
17.0%
13,900
42,200
(3,700)
1,300
0
0
$2.89
56,232,400
11.2%
0.9%
12.1%
12.1%
1,030,500
2,046,300
44,500
198,500
64,000
767,400
$4.22
BRENTWOOD Subtotal
OLYMPIC CORRIDOR Subtotal
27
WEST HOLLYWOOD Subtotal
31
WEST LOS ANGELES Subtotal
10
MARKET TOTAL Total
434
Note: revisions to the inventory base were made effective Q2 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
Q2 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
TEL: +1 213 627 1214 FAX: +1 213 327 3200
CAITLIN MATTESON Research Director Research Services
