Everyone is curious about the state of the market for commercial real estate – office, Industrial, and retail – now that the COVID shutdowns are (mostly) over.  Below are some well researched and concise observations, credit to my friend and excellent appraiser, Calvin Cummings of Valbridge Property Advisors in his Quarterly Market Update.

 

Office

 

• The outlook continues to be grim for the LA office sector.  Vacancies are at a 25-year high of 13.9%, the highest level since the onset of the pandemic, while rental rates are down from a peak in 2020 Q1. This is good news for tenants, who are seeing concessions and other generous incentives.

 

• The supply of sublease space remains at record levels: 9.7 million square feet is currently available (more than double pre-pandemic averages.)

 

• Despite these poor conditions, landlords have been holding firm on asking rates since the second half of 2020.

 

Industrial

 

• Although 41.6 million SF has been delivered over the past decade, inventory levels have remained fairly consistent due to the demolition of 35.3 million SF some properties were redeveloped into

more modern industrial facilities while others were converted into creative office spaces.

 

• Vacancies are highest in the Central LA Submarket (including downtown and surroundings). Los Angeles consistently has the lowest vacancy rate among major U.S. industrial markets.

 

• Rents are highest in submarkets where industrial users compete with other property types. Tenants on expiring leases can expect to pay rates at 50% or more above their previous deals.

 

• Rents in the Inland Empire have continued to rise: a year-over-year comparison

shows an annual gain of 13.1% (vs 10.2% in the year prior.)

 

Retail

 

• Some retail vacancies - especially big box sites with good freeway access - have been acquired for redevelopment into industrial sites.  Developers are focusing on properties with proximity to regional

light rail.

 

• Fitness centers and grocers have been strong performers, adding locations while many other retail subsectors have struggled.

 

• Retail rents, although higher than the national average, remain low for LA, and are now holding around $34/SF. There is a wide spread in asking rates, with only a very few submarkets (e.g. Beverly Hills) showing positive annual growth. Metro rental rates are expected to decline for at least the near term.

 

If you would like more outstanding research data, you can call Calvin at (626) 486-9327.  If you would like a sounding board to help you figure out your company’s real estate strategy going forward, you can call me.  Let’s turn on the lights to see if your future looks bright.