office CENTRAL LOS ANGELES market report Central Los Angeles Leasing Activity Surges Despite Negative Absorption Market overview MARKET indicators - VACANCY 19.8% NET ABSORPTION -112,300 CONSTRUCTION 1,242,600 RENTAL RATE $2.17 P UNEMPLOYMENT 7.0% The Central Los Angeles office market saw decreased demand through the third quarter 2015 with net absorption recording at -112,300 square feet () from 20,000 the previous quarter. The total vacancy rate subsequently increased 90 basis points to 19.8% from 18.9% one quarter ago. Despite the drop in demand, the Central Los Angeles market remains bullish. Direct weighted average asking rents increased to $2.17 per square foot (P), per month Full Service Gross (FSG) on the strength of increasing lease rates in the Mid- Wilshire submarket. New leasing activity rose from last quarter s 111,048 to 476,600. Hollywood registered the majority of the leasing activity for the quarter recording 355,200, with NetFlix accounting for 200,500 at Hudson Pacific s Icon campus. Most leasing activity in the past three quarters has consisted of pre-leases for pipeline properties, such as Columbia Square and the aforementioned Icon. Sale activity for third quarter consisted of one major sale as 1800 N. Highland Ave. in Hollywood traded from CIM Group to a joint venture of the The Souferian Group and The Carlyle Group for $44.4M, or $511 P. The building, which was 86% leased at time of sale to tenants such as Forbidden Images Production and Live Nation, will be repositioned by the new owner as creative office space. MARKET trends - >> Total vacancy rate increases to 19.8% from 18.9% HISTORICAL VACANCY VS RENTS Q3 2011 - RENTS VACANCY HISTORICAL net absorption & Construction COMPLETIONS Q3 2011 - NET ABSORPTION CONSTRUCTION COMPLETIONS >> Weighted average asking rental rate increases to $2.17 P >> Leasing activity rises to n n476,600 >> Absorption of -112,300 $ P FSG PER ANNUM (WEIGHTED) $2.50 $2.00 $1.50 22% 20% 18% 16% 14% % VACANT (TOTAL) 150,000 100,000 50,000 0 (50,000) (100,000) >> Construction activity at 1,242,600 nn $1.00 3Q11 3Q12 3Q13 3Q14 3Q15 12% 10% (150,000) (200,000) 3Q11 3Q12 3Q13 3Q14 3Q15 1 Colliers International continuously refines its database. As a result, data reflected in this report may not be consistent with data reported in previous quarters. www.colliers.com/losangeles
market Report OFFICE central LOS ANGELES LOS ANGELES COUNTY DEMOGRAPHICS >> Population: 10,136,509 (2015 Estimate) 10,510,281 (2020 Projection) 3.69% (Growth 2015-2020) >> Household income: $78,309 (Average) $54,514 (Median) >> Job growth: 1.8% (past 12 months) >> Unemployment rate: 6.9% (as of August 2015) VACANCY The total vacancy rate, including sublet space, increased to 19.8% from 18.9% reported last quarter. Twelve months ago the vacancy rate stood at the same rate of 19.2%. Total vacancy rates continued to be highest in the Mid-Wilshire submarket (22.6%) and lowest in the Hollywood submarket (10.8%). rates were highest for Class B space (26.5%) and lowest for Class A space (11.5%) with Class C space in-between at 18.6%. NET ABSORPTION The market saw negative demand as net absorption was -112,300 in third quarter. Both Hollywood and Mid-Wilshire submarkets registered negative absorption with -25,300 and -87,000 respectively. Net absorption from the perspective of building classes recorded Class A office space at -54,100, Class B at -53,300 and Class C at -4,900. UNEMPLOYMENT August 2015 figures for nonfarm employment in Los Angeles County showed continued recovery for the job market. Over the past 12 months, Los Angeles County has gained 76,300 jobs for an increase of 1.8%. This gain in employment led to unemployment lowering to 6.9% compared to 8.1% one year ago. Nine out of the eleven industries tracked by the EDD posted year-overyear gains. Educational and Health Services (+22,500), Trade, Transportation, and Utilities (+17,100) and Leisure and Hospitality (+16,800) posted the largest gains. Government (+ 7,500), and Professional and Business Services (+6,500) also increased year-over-year. VACANCY BY SUBMARKET NET ABSORPTION BY SUBMARKET SUBLEASE VACANCY DIRECT VACANCY 0 25% 20% 0.0% (10,000) (20,000) (30,000) (25,300) % VACANT 15% 10% 0.3% 22.6% (40,000) (50,000) (60,000) (70,000) 5% 10.5% (80,000) 0% (90,000) (100,000) (87,000) p. 2 Colliers International
market Report OFFICE central LOS ANGELES office OVERVIEW EXISTING PROPERTIES VACANCY ACTIVITY ABSORPTION CONSTRUCTION RENTS Submarket/ Class Bldgs Total Inventory Direct Sublease Total Total Prior Qtr Leasing Activity Current Qtr Leasing Activity YTD Net Absorption Current Qtr Net Absorption YTD Completions Current Qtr Under Construction Weighted Avg Asking Lease Rate A 16 3,691,900 12.5% 0.0% 12.5% 11.7% 49,600 106,900 (27,200) (6,800) 0 0 $2.07 B 39 5,811,800 27.9% 0.0% 27.9% 27.0% 71,800 87,700 (54,900) (56,500) 0 0 $1.98 C 9 693,400 31.4% 0.0% 31.4% 30.7% 0 700 (4,900) (600) 0 0 $1.63 Subtotal 64 10,197,100 22.6% 0.0% 22.6% 21.7% 121,400 195,300 (87,000) (63,900) 0 0 $1.96 A 12 1,658,100 9.0% 0.3% 9.3% 7.6% 280,600 441,000 (26,900) (12,100) 0 1,242,600 $3.59 B 17 1,004,500 17.6% 0.5% 18.1% 18.2% 74,600 122,800 1,600 9,100 0 0 $3.60 C 13 524,600 1.5% 0.0% 1.5% 1.5% 0 0 0 (1,200) 0 0 $2.62 Subtotal 42 3,187,200 10.5% 0.3% 10.8% 10.0% 355,200 563,800 (25,300) (4,200) 0 1,242,600 $3.57 MARKET TOTAL A 28 5,350,000 11.4% 0.1% 11.5% 10.5% 330,200 547,900 (54,100) (18,900) 0 1,242,600 $2.44 B 56 6,816,300 26.4% 0.1% 26.5% 25.7% 146,400 210,500 (53,300) (47,400) 0 0 $2.14 C 22 1,218,000 18.6% 0.0% 18.6% 18.2% 0 700 (4,900) (1,800) 0 0 $1.67 Total 106 13,384,300 19.7% 0.1% 19.8% 18.9% 476,600 759,100 (112,300) (68,100) 0 1,242,600 $2.17 Colliers International p. 3
market Report OFFICE central LOS ANGELES >> Overall leasing activity recorded 476,600 in third quarter >> No new projects were delivered to the market in third quarter; however, there is currently 1.24 million under construction >> Demand dropped in third quarter, but will rebound as pre-leased projects are delivered to the market CONSTRUCTION Hollywood s development pipeline currently has 1,242,600 of office space under construction, which is approximately 33% of all new construction in Los Angeles County. While construction deliveries remained flat for the quarter, completions are imminent for Kilroy s Columbia Square, a $300 million mixed use project, and J.H. Snyder s Hollywood 959 project totaling 250,000. Both properties are expected to start delivering office space in fourth quarter of this year. Hudson Pacific Properties, Inc. continued construction on 405,000 at Icon, located on the Sunset Bronson Studios lot. The Class A space, is expected to deliver in fourth quarter 2016. activity New leasing activity in third quarter 2015 rose to 476,600 compared to 171,500 the previous quarter. Class A office space generated the majority of new leasing activity in Q3 with 330,200. NetFlix headlined the lease deals signed, agreeing to occupy 200,100 at the yet-tobe-delivered Icon. In addition, SIM Group signed for 65,000 at Lincoln Property s Hollywood Media Campus, bringing that property to 100% leased. In the Mid-Wilshire submarket, SP Plus Corp. agreed to occupy 22,800 at 3470 Wilshire Blvd. Despite lessened demand, leasing activity continues to surge in the Hollywood submarket due to the combination of high quality Class A pipeline projects and strong preleasing efforts. Demand will rise concurrently as these projects deliver. rental rates The weighted average asking rent for direct space increased to $2.17 P. Average asking rents remained highest in the Hollywood submarket ($3.57 P), and lowest in the Mid- Wilshire submarket ($1.96 P). Asking rents for Class B office space in Mid- Wilshire rose by $0.17 from last quarter as Jamison increased rents for their office inventory in the submarket. The trend for asking rents in Central Los Angeles will see increases through 2015 and beyond as new, high quality space becomes available for lease. WEIGHTED AVERAGE ASKING LEASE RATES BY SUBMARKET LEASING ACTIVITY BY SUBMARKET $4.00 $3.50 $3.57 400,000 350,000 355,200 $3.00 300,000 $ P PER ANNUM (FSG) $2.50 $2.00 $1.50 $1.00 $1.96 250,000 200,000 150,000 100,000 121,400 $0.50 50,000 $0.00 0 p. 4 Colliers International
market Report OFFICE central LOS ANGELES Outlook The Hollywood submarket will continue to see strong demand for space from entertainment, media and technology firms as pre-leased properties are delivered to the market. With the surrounding submarkets mostly builtout and creative tenants passing on the burgeoning, but not fully-realized Downtown Los Angeles creative market, Hollywood has the opportunity to attract tenants desiring quality space at a lower price-point than the Silicon Beach cluster. The preponderance of large blocks of space is also attractive for companies looking to consolidate their operations or relocate headquarter offices. market description Central Los Angeles is an office market comprised of 13.6 million, representing 6% of the total office space 25,000 and greater in the Los Angeles Basin. Mid-Wilshire is attractive to small, entrepreneurial, and often Pacific Rim-owned businesses while Hollywood has a mix of firms from the professional services, high-tech and entertainment/media sectors. HISTORICAL LEASING ACTIVITY Q3 2011 - UNEMPLOYMENT RATE United States, California & Los Angeles County August 2015 4,000,000 600,000 3,500,000 3,000,000 400,000 8.0% 7.0% 6.0% 5.0% 5.2% 6.1% 6.9% 2,500,000 300,000 4.0% 3.0% 2,000,000 200,000 2.0% 1,500,000 100,000 1.0% 1,000,0000 4Q08 3Q11 4Q09 3Q12 4Q10 3Q13 4Q11 3Q14 4Q123Q15 0.0% United States California Los Angeles County RECENT TRANSACTIONS & MAJOR DEVELOPMENTS SALES ACTIVITY PROPERTY ADDRESS SIZE SALE PRICE PRICE P BUYER SELLER 1800 N. Highland Ave., Hollywood 86,800 $44.4M $511 P The Souferian Group/Carlyle Group CIM Group LP LEASING ACTIVITY PROPERTY ADDRESS LEASED LEASE TYPE BLDG TYPE LESSEE LESSOR 5808 W. Sunset Blvd., Hollywood 200,500 Direct-New A NetFlix Hudson Pacific Properties 1017 N. Las Palmas Ave., Hollywood 65,000 Direct-New A SIM Group Lincoln Property Company 3470 Wilshire Blvd., Los Angeles 22,800 Direct-New A SP Plus Corp Jamison Services 6430 Sunset Blvd., Hollywood 15,000 Renewal A Oxford Road Broadreach Capital Partners MAJOR DEVELOPMENTS PROJECT DEVELOPER SIZE SUBMARKET STATUS ESTIMATED COMPLETION Columbia Square (5 bldgs) Kilroy Realty 461,140 Hollywood Under Construction Q4 2015 Icon at Sunset Bronson Studios (2 bldgs) Hudson Pacific Properties, Inc 405,000 Hollywood Under Construction Q4 2016 959 Seward St - West/East Bldgs J.H. Snyder Company 247,836 Hollywood Under Construction Q4 2015 1601 N Vine St J.H. Snyder Company 128,624 Hollywood Under Construction Q1 2017 Colliers International p. 5
market Report OFFICE central LOS ANGELES DEFINITIONS OF KEY TERMS USED IN THIS REPORT Total Rentable Square Feet: Office space in buildings with 25,000 or more of speculative office space. Includes competitive space in Class A, B and C singletenant and multi-tenant buildings. Excludes non-competitive owner-occupied buildings, buildings that include 30% or greater of medical or retail space, and space that is underconstruction, under-renovation or off-market. Net Absorption: Net change in occupied square feet from one period to the next (includes the impact of change in vacant space available for sublease). Leasing Activity: Square feet leased from all known transactions completed during the quarter. Excludes lease renewals. 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 >> $2.3 billion in annual revenue >> 1.7 billion square feet under management >> Over 16,200 professionals Class A Space: Space that an image-conscious company would lease for its headquarters. Typically, this space has a very high level of finish and an excellent location, and commands the highest rents in the market. Class B Space: Highly functional, attractive space, but less prestigious than Class A Space, and commanding lower rental rates. Class C Space: Functional, competitive space, but with a lower level of finish and/or a less desirable location than with Class B Space, and commanding lower rental rates. Low-Rise: Buildings with a total of 4 floors or less. Weighted Average Asking Rental Rates: Weighted by the total square feet available for direct lease. Data is based on Full Service Gross rents, and includes all costs associated with occupying the space, including taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per basis. Space Added (Net): Total square feet added during the quarter via construction completions, including renovated space returned to market, less total square feet taken off-market due to demolitions or conversions. Under Construction: Includes buildings that are in some phase of construction, beginning with foundation work and ending with the issuance of a Certificate of Occupancy. united states: Downtown Los Angeles Office License No. 01908231 865 S. Figueroa Street, Suite 3500 Los Angeles, CA 90017 tel +1 213 627 1214 FAX +1 213 327 3200 MATTESON, CAITLIN Research Director Research Services MUMPER, HANS Executive Managing Director WONG, CHRISTOPHER Regional Analyst Research Services Mid-Rise: Buildings with a total of 5 to 13 floors. High-Rise: Buildings with 14 or more floors. Technical Note Colliers International is continuously refining its database. The data shown in the historical tables and graphics in this report have been adjusted to take into account these changes in the database. Direct : Space in existing buildings that is vacant and immediately available during the quarter for direct lease, plus space that is vacant but not available for direct lease or sublease (for example, that is being held for a future commitment). Total : Space in existing buildings that is vacant and immediately available during the quarter for direct lease or for sublease, plus space that is vacant but not available for direct lease or sublease. This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This report and other research materials may be found on our website at www.colliers.com/greaterlosangeles. Accelerating success. p. 6 Colliers International www.colliers.com/marketname