2023 Market Update
Lease Rates
- Office space – The average asking full-service gross lease rate (FSG) per month is now at $2.64 per square foot
- Industrial Space – The average asking NNN lease rate per month is now at $1.62 per square foot
Transaction Activity
- Office space – Lease and sale activity was 2,079,000 SF at the start of 2023 – Transaction volume has fallen 41.71% in the last year
- Industrial space – 173 lease transactions in Q1 totaling 1.33 million SF leased.
Vacancy
- Office Space – The direct vacancy rate is 16.85%
- Industrial Space – The vacancy rate is 1.46%
Construction
- Office space – Construction activity has fallen to zero a the start of 2023, meaning current building owners will not see much of a change in leasing activity. There are another 1,363,818 SF of space planned between 2 major projects, however, these projects likely won’t begin until market conditions improve. The Press project, the redevelopment of the old LA Times facility, is the main project at 400,000 SF in Q1 and has been preleased to Anduril.
- Industrial Space – Construction queue currently 2.1 MSF – Total base inventory is 234 MSF
Absorption
- Office Space – Net absorption has decreased in 2023, leading to a negative net absorption of 1,262,288 SF. The pandemic has made more people opt to downsize. Companies are conservative with their office space, trying to maximize efficiency by putting more employees in less space compared to the past where they bought a bigger space and then tried to grow into it.
- Industrial Space – 496,325 SF loss in occupied space
Employment
- The unemployment rate as of 2023 hovers between 3.0-3.4%
- Employment has increased in the following sectors: government (2,800 jobs), private education and health services (1,900 jobs), construction (1,800 jobs), professional and business services (1,100 jobs), financial activities (600 jobs), other services (1,500 jobs)
Overall
As office tenants continue to work a hybrid schedule, it is anticipated that the office market will face significant challenges in the future, which should benefit the tenants’ negotiation leverage.
Since industrial tenants cannot do any work of scale within their garage and developers are not building more industrial space, the vacancy rate should stay relatively low, which will impact lease rates for tenants.