Increased demand for office space from creative and co-working tenants is driving down office vacancy in the Greater Los Angeles area, according to a new report by CBRE.
The overall vacancy rate for the region decreased by 10 basis points to 15.1 percent in the first quarter from 15.8 percent a year ago, the report shows. Vacancy fell most substantially in West Los Angeles, where it dropped from 12.7 percent to 11.3 percent in just a year.
CBRE analysts attributed the increased occupancy rate in part to the co-working craze that’s been sweeping the whole city and Downtown L.A. in particular.
“Though many market observers and participants tend to hold overly bullish or overly bearish opinions about the concept of co-working, the one undeniable truth is that co-working companies are accounting for an ever-increasing chunk of net absorption and nowhere is this more true than in Downtown Los Angeles.”
WeWork, for instance, has been gobbling up space all over the county. It entered the L.A. market in 2011, signing on for 35,700 square feet at 7083 Hollywood Boulevard in Hollywood. Last year, it signed for roughly 90,000 square feet at the Brookfield-owned Gas Company Tower in Downtown Los Angeles at 555 West 5th Street. It also has a 44,500-square-foot space in Downtown’s historic Fine Arts Building at 811 West 7th Street, which it leased in 2014 for a 15-year term, The Real Deal previously reported.
Falling vacancy rates are likely contributing to upward pressure on office rents. The average overall asking lease rate for an L.A. office space increased to $2.91 in the first quarter, a 4.6 percent increase year-over-year, the report shows. In Downtown L.A., asking lease rates increased by 7.9 percent over the past year.
Meanwhile, new development of office space is in full swing. More than 2.3 million square feet of new office space is currently under construction in Greater L.A., including a whopping 459,431 square feet in Hollywood, according to CBRE.