Commercial Brokers International CEO George Pino gives his outlook for the Commercial Real Estate market in Los Angeles for the Third Quarter of 2016.
Hi, my name is George Pino. I'm the CEO of Commercial Brokers International here in Los Angeles. This video is a follow-up video to my 2016 Second Quarter Outlook.
Today, we'll be covering my third quarter outlook and how I see it for office, retail & investments in multifamily.
The West Los Angeles office submarket remains very strong with inventory still being very tight. Average vacancy rates for office space average about 8.8%, with Class A office space averaging about 10.3%.
Overall, rental rates are still remaining high and growing, with average rental rate about $4.25 a square foot and Class A office rates at about $4.33 a square foot full service gross.
Couple of hot areas within the submarket is, of course, Culver City, Venice & Santa Monica. What is unique about this market right now, however, is that we are seeing an increase in sublease spaces that are currently becoming on the market.
Overall, this may be an indicator that things are cooling down, with offices looking to either downsize or not being able to afford the current rents in this market and looking for alternative spaces to move to.
A shining star within the Westside office submarket is, of course, the creative office space. The average vacancy rate here is much lower than average for office buildings and it's about 6.1%, with the average asking rental rates at about $4.32 a square foot. Developers are trying to capitalize off of this and we see a slew of new developments on the market, or currently being developed with the Colorado creative office space in Santa Monica leading the way with about 200,000 square feet that they just broke ground on -- and also over 1 million square feet of Westside Creative Office Space looking to come on the market within the next year or year and a half. We're also seeing developers looking to convert some of the Class A office buildings and build creative spec suites -- full force spec suites -- to attract some of the larger tech giants that are looking to move into the area.
What we do need to keep in the back of our minds is the other submarkets within the immediate area that are attracting and looking for some of these tech giants and creative office space, with El Segundo leading the way with over 1.5 million square feet of planned creative office space currently under development.
I think retail overall is still a good investment. We do have to weigh that and be concerned a little bit about with what's going on with the general economy -- with the elections coming up at the end of the quarter and going into the fourth quarter -- and what will then happen after the elections. That being said, rents are currently on the rise within this Southern California, West Los Angeles submarket and, in addition to that, we are also seeing the vacancy rates still fairly low and fairly stabilized -- at about a 3% vacancy rate -- or a little bit over 3%. Overall, all the indicators show that retail seems to be fairly strong as an investment.
Another strong area for investments is multifamily. A lot of people are bullish on this market. I, actually, tend to weigh more conservatively especially on some of the rent controlled apartments within the Southern California submarket, that being Los Angeles, West Hollywood, Beverly Hills. However, other markets I am very bullish on for those not being in the rent controlled areas -- that would be the South Bay and Culver City and all newer properties built after 1978. The reason for this is there a lot of pass throughs that the landlord will be able to go into by raising rents that they are not going to necessarily be able to do for some of the older buildings or the ones that are under rent control.
So I hope you have found this outlook beneficial to you and I look forward to giving you an update in about 3 months for the Fourth Quarter.