 |
|
|
 |
|
|
Our ULP Brokers weigh in on when they predict their market will hit bottom and recover
DOWNTOWN LA
In contrast to the other office markets within the Greater LA Basin, the economic downturn has not been as severe in the Downtown LA office market, based on its modest rise in vacancy and relatively stable rents. Like other markets up and down the West Coast, expect tenants who until recently held off on making a leasing decision to begin to lock in long-term deals as they take advantage of rental rates that are widely considered under market. It should be noted, however, that a potential setback to this forecast is the continued uncertainty surrounding Downtown LA's largest office landlord, Maguire Properties. Maguire recently returned several of its assets (mostly in Orange County) to its lenders, including 550 S. Hope Street in Downtown LA.
PORTLAND
Due to its diverse tenant mix of small companies, Portland's office market moves into and out of recessions at a slower pace than other West Coast cities, which have dominant companies that give or take back vast quantities of space. Portland's leading indicator for the health of the office market is unemployment. Currently, Portland suffers from double-digit unemployment. When the city begins to see job growth, this will indicate the onset of the office market recovery, albeit at a lag of approximately six to nine months. As a result, we predict Portland's office market to begin its recovery in 2011 and to continue in a "U" shape through 2012.
SAN FRANCISCO
In terms of rental rates, we project San Francisco will hit bottom by the 3rd quarter of 2009. There is a proportionately high amount of leases (compared to recent years) expiring in 2010 and 2011 which is fueling activity. Tenants are already making a "flight to quality," by capturing better space at rents that have been reduced by as much as 40%, from 18 months ago. Although we expect more sublease space to hit the market in the next 2 quarters and a few large vacancies in 2010 (AAA, Wells Fargo and Schwab), the projected increase of tenants who are either expanding or relocating to the City will help offset much of the negative absorption that might occur.
SEATTLE
We project the Seattle office market will hit bottom in the 2nd quarter of 2010, when vacancy will likely reach 18 percent. Over the past 12 months medium to large tenants have avoided locking into long term transactions in an effort to "time the market." These tenants now appear ready to sign long term deals to take advantage of the aggressive economics available from landlords. Venture Capital funding and home sales will be key indicators that the Seattle market is recovering. The industries that will lead Seattle out of the soft market include technology, start up ventures, engineering, architectural, and biotech.
WEST LA
With cautious optimism, we predict that the West LA office market will hit bottom during the 4th quarter of 2009. Second quarter posted 246,000 SF of negative net absorption, which is an improvement over the negative 1 million SF seen in Q1. However, despite the acceleration of available space slowing, new supply bolstered vacancy by 150 basis points to 13.9% in Q2. With many firms having already "right-sized", it appears the majority of anticipated large blocks of space have already returned to the market. On the other hand, as long as job growth remains anemic, we will continue to see high vacancy and downward pressure on asking rents.
INVESTMENT
Most investors feel that we are still early in Capitulation due to the fact that employment is the driver for office and with unemployment still increasing and the capital markets still frozen, we are in for at least 6-12 more months of bearish news for the office sector. It's a great time to buy as most of the risk has already been factored into the economy; stocks are moving up on anticipation that we have hit bottom; and investors are getting a little more comfortable with pricing risk. The investment market will trail the leasing market by 3-6 months at least; so we could see office leasing turning around or hitting bottom as early as the first quarter of next year. As for the office market, this recovery will be either a "U" or an "L"; and possibly a "W"; but definitely not a "V".
|
|
 |
|
|
