Absorption Turns Negative for Office in LA County as Vacancy Spikes
Rising vacancy and declining absorption have returned to office in Los Angeles County, despite strong demand seen in the fourth quarter.
In the first quarter, the vacancy rate in Q1 increased by 46 bps from Q4 to 6.73%, according to a new report from DAUM Commercial Real Estate Services. Year-over-year, the increase was 74 bps or 7.2 million square feet.
Net absorption turned negative in Q1 after a positive Q4, resulting in a 3.1 million-square-foot drop over the period.
The only submarket to see a tightening in vacancy was the Central/Southeast, which had its strongest quarter for net absorption in more than four years.
Asking Rates declined by two cents or 1.5% to a rate of $1.34 per square foot NNN in Q1.
Offsetting that, leasing activity rose 31.1%, indicating growth in user confidence, with 11.94 million square feet leased. The median price per square foot in Q1 was $292.82. Volume in Q1 totaled $1.39 billion, an increase of 20.2% from Q4.
Regarding the supply chain, year-to-date (YTD) and year-over-year (Y/Y) volume at the San Pedro port complex is down 5.6% through February.
Shipping costs from China/East Asia to the West Coast declined 7.5% over Q1, ending at $2,420 per container, according to data from Freightos. Elevated tariffs with a 10% baseline and higher surcharges persist, generating strong federal revenue while gradually increasing consumer prices, especially for imported and other tradeable goods.
Other factors include the Fed (FOMC) deciding to hold rates between 3.50% to 3.75% during two meetings in Q1. Only one cut is projected in 2026.
The military action in Iran has increased oil prices by more than 70%, meaning prices will remain elevated until the conflict is resolved, potentially impacting CRE across the board.
Source: GlobeSt/ALM