CSQ ADVISOR
Michael Adler
President & CEO
Adler Realty Investments, Inc.
Woodland Hills, CA
Michael Adler is President and CEO of Adler Realty Investments, Inc., a real estate investment and development company that currently owns and operates 2.4 million square feet of
commercial real estate throughout the Western United States with its high net worth and institutional investment partners. Adler has acquired, developed, and managed a multitude of real estate projects worth over $600 million since 1995, and is planning to acquire additional properties with investment partners during the next two years to take advantage of the current
weakness in the market.
818/884.2200 Ext. 5503
adler@adler-realty.com
www.adler-realty.com
Commercial Real Estate
The L.A. Office Market
Is 2011 The Bottom?
After three years of continued decline, both the U.Ss economy and U.S. commercial real estate markets are showing signs of recovery. Although indicators point to a tempered recovery, the improvement is expected to impact all product types of real estate. National indicators point to increased consumer confidence, continued private sector job growth, and increasing corporate profits. Regionally, the Washington, DC metro area has led the nation in terms of hiring in 2010. Other major cities topping the list were Austin, Dallas, Boston, and Pittsburgh. The cities showing the largest declines in employment were Chicago, Los Angeles, New York, Detroit, and Philadelphia.
The L.A. economy had been hit especially hard during this recession, but is expected to continue on its road to recovery in 2011, though not without its problems. Even though unemployment rates remain elevated, moderate job growth is expected to continue through 2011. Data from CB Richard Ellis office market reports forecast office employment in the L.A. area to grow by 24,600 jobs this year, with the professional and business services employment sector to post the best job performance over the next two years. Though it seems we finally have job growth in the area, the magnitude of the growth is far weaker than what is needed to quickly turn around a commercial real estate market that has seen massive job loss since its peak in the summer of 2007.
After 12 straight quarters of office vacancy rate increases in Greater Los Angeles, the fourth quarter of 2010 showed a stable vacancy rate of 18%, the same as the 3rd quarter of 2010, but up from the 10% level prior to the recession in the 3rd quarter of 2007. The highest vacancy rates in the region, according to CB Richard Ellis, was in the Ventura County submarket (23%), followed by the San Fernando Valley submarket (20.8%), and the South Bay (20.6%). The lowest vacancy rates were in the San Gabriel Valley (11.4%). The Downtown L.A. vacancy rate was 17.7% and West Los Angeles was 16.3%.
Although vacancy rates have appeared to have stabilized, absorption of vacant space is not expected to be robust in 2011, and the area continues to be challenged by corporate downsizing and the lack of organic growth from small business, who continue to find it difficult to access meaningful credit for expansion.
Office lease rates declined through 2010, as they had in the previous two years. Lease rates are expected to continue their decline but at a much slower rate, and even stabilize in some local markets in 2011 as the office market continues to recover from the down economy and shift toward equilibrium. But, the projected job growth for 2011 in the L.A. area points to a very fragile recovery, certainly not strong enough to bring vacancy rates down to levels that will encourage wide spread rent growth.
So, if you are a user of office space in the Los Angeles area, 2011 will be another year of great opportunity to sign leases at depressed rental rates. If you are a commercial real estate owner, like me, you are in for another year of low returns on investment. If you believe the Southern California economy will continue on its economic recovery, then 2011 may likely be a great year to invest in commercial real estate in the region.
