Although sustained job growth supported steady demand for office space in 2014, with leasing activity at its highest levels since 2006, Los Angeles is an occupiers’ market (with the exception of Westside). The overall vacancy rate is high and tenants have multiple opportunities across various sub-markets, meaning it is a prime location for space-hungry companies seeking cost savings.
This is the one market where US dollar appreciation may be suppressing investment as it makes prices look more expensive to overseas purchasers. In the investment markets, deal volumes ended 2014 18.2% down on 2013 levels, at $7.9 billion. This is 61.1% up on 2012 volumes, but still well below the $12.9 billion achieved in 2007. Buyers from Asia, namely Hong Kong and China, dominated cross-border activity in the city (20% of all big-ticket deals last year were from overseas).
Three factors will continue to restrain activity in Los Angeles during 2015: ongoing downsizing and ‘rightsizing’ in the professional services and corporate sectors; the drive to less expensive space in secondary and tertiary markets; and new construction levels that are increasing in line with the economic recovery.