The office space leasing market has seen a small change in favor of landlords in recent months.
The average office vacancy rate in Los Angeles, Orange County, Riverside and San Bernardino was:
- 17.5% in the third quarter of 2013 (Q3 2013); and
- 18.4% in Q3 2012.
The average rental rate in the same counties was:
- $2.33 a square foot in Q3 2013; and
- $2.28 a square foot in Q3 2012.
West L.A. is faring better than other regions since many of its tenants are in either the entertainment or technology industries, both of which are flourishing.
However, current trends point to a slow return of the pendulum to a landlords’ market. Many offices in these counties have been staffing more employees in less space. The vacancy rate still continues at twice the percentage for a “healthy” market, according to real estate experts.
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Although counterintuitive, the solution to lowering office vacancy rates is to build more residential properties. Reforming restrictive zoning laws to allow construction of high-rise residential properties in commercial neighborhoods has the potential to create more job growth in these areas – and more jobs means business growth and a lower vacancy rate.
Mixed-use zoning allows people to live where they work. This attracts more qualified professionals and increases density, which results in innovation and cultural and economic growth not produced by suburban living.
Greater density means more diversity, which encourages innovation. More people also means more focused demand for goods and services, which means more opportunity for employment. The benefits of urban density piggy-back on each other, creating a virtuous real estate market cycle.
The office space rental market may be crawling forward now, but liberating cities from restrictive zoning regulations will allow much greater growth and happier new residents who live where they work.
Re: “Southern California office rental market improves slightly” from The Los Angeles Times.