office CENTRAL LOS ANGELES market report Slow Start to the Year as Hollywood Awaits Construction Deliveries Market overview MARKET indicators - VACANCY 19.1% NET ABSORPTION 24,300 CONSTRUCTION 1,242,600 RENTAL RATE $1.92 P UNEMPLOYMENT 7.8% The Central Los Angeles office market started 2015 on a positive note with net absorption recording at 24,300 square feet (). During first quarter, the total vacancy rate decreased 20 basis points to 19.1% from 19.3% a quarter ago. Direct weighted average asking rents increased to 1.92 per square foot (P), per month Full Service Gross (FSG). New leasing activity dropped from last quarter s 251,760 to 111,048, a 56% decrease. Neither submarket saw a huge advantage in leasing activity, as Hollywood and Mid-Wilshire registered 63,173 and 47,875 respectively. The lack of large blocks of creative office space in Hollywood is expected to be satisfied by the strong development pipeline in Hollywood. There is approximately 1.24 million of office space currently under construction in the Central LA market, which is approximately 30% of all new construction in Los Angeles County. Sale activity was slow for the quarter as only 1 investment building above 25,000 traded in the Central Los Angeles market. Mousebutt Holdings LLC acquired 1635 N Cahuenga Blvd in Hollywood for $16.4M ($473 P). MARKET trends - >> Total vacancy rate decreases to 19.1% from 19.3% HISTORICAL VACANCY VS RENTS Q1 2011 - RENTS VACANCY HISTORICAL net absorption & Construction COMPLETIONS Q1 2011 - NET ABSORPTION CONSTRUCTION COMPLETIONS >> Weighted average asking rental rate increases to $1.92 P >> Leasing activity drops to n n111,048 >> Absorption of 24,300 $ 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 nnn $1.00 1Q11 1Q12 1Q13 1Q14 1Q15 12% 10% (150,000) (200,000) 1Q11 1Q12 1Q13 1Q14 1Q15 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: 2.4% (past 12 months) >> Unemployment rate: 7.8% (as of February 2015) VACANCY The total vacancy rate, including sublet space, decreased to 19.1%, down 20 basis points from 19.3% reported last quarter. A longer historical perspective of the total vacancy rate shows that the vacancy rate a year ago stood at a relatively flat 19.2%. Total vacancy rates continued to be highest in the Mid-Wilshire submarket (21.7%) and lowest in the Hollywood submarket (10.6%). rates were highest for Class B space (26.0%) and lowest for Class A space (10.5%) with Class C space in-between at 18.1%. NET ABSORPTION Net absorption was 24,300 in first quarter due to the positive absorption witnessed in the Mid-Wilshire submarket (23,400 ). This outpaced the positive absorption recorded by Hollywood (900 ). Net absorption from the perspective of building classes recorded Class A office space at 33,200, Class B at -12,600 and Class C at 3,700. UNEMPLOYMENT February 2015 figures for nonfarm employment in Los Angeles County showed a recovering job market. Over the past 12 months, Los Angeles County has gained 101,100 jobs for an increase of 2.4 percent. This gain in employment led to the unemployment lowering to 7.8% compared to 8.7% one year ago. Year-over-year job gains were most significant in Educational and Health Services (+27,400) and Trade, Transportation, and Utilities (+19,600). VACANCY BY SUBMARKET NET ABSORPTION BY SUBMARKET 25% SUBLEASE VACANCY DIRECT VACANCY 25,000 23,400 20% 0.1% 20,000 % VACANT 15% 10% 0.2% 21.6% 15,000 10,000 5% 10.4% 5,000 0% 0 900 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 3,691,867 11.9% 0.4% 12.3% 12.3% 21,170 74,270 1,100 67,500 0 0 $1.86 B 39 5,811,816 26.9% 0.0% 27.0% 27.1% 8,863 180,563 7,900 11,300 0 0 $1.62 C 9 693,433 31.4% 0.0% 31.4% 31.4% 0 36,400 0 (15,200) 0 0 $1.57 Subtotal 64 10,197,116 21.8% 0.1% 21.9% 22.0% 30,033 291,233 9,000 63,600 0 0 $1.66 A 12 1,658,126 7.8% 0.8% 8.5% 8.0% 209,549 304,849 (9,900) 21,800 0 1,242,600 $3.70 B 17 996,152 19.0% 0.0% 19.0% 17.4% 8,316 44,416 (15,000) (24,500) 0 0 $3.46 C 13 524,626 1.3% 0.0% 1.3% 2.0% 3,862 28,362 3,900 11,300 0 0 $2.38 Subtotal 42 3,178,904 10.2% 0.4% 10.6% 10.0% 221,727 377,627 (21,000) 8,600 0 1,242,600 $3.53 MARKET TOTAL A 28 5,349,993 10.6% 0.5% 11.1% 11.0% 230,719 379,119 (8,700) 89,400 0 1,242,600 $2.34 B 56 6,807,968 25.8% 0.0% 25.8% 25.7% 17,179 224,979 (7,100) (13,200) 0 0 $1.83 C 22 1,218,059 18.4% 0.0% 18.4% 18.7% 3,862 64,762 3,900 (3,900) 0 0 $1.60 Total 106 13,376,020 19.0% 0.2% 19.3% 19.2% 251,760 668,860 (11,900) 72,300 0 1,242,600 $1.92 Colliers International p. 3
market Report OFFICE central LOS ANGELES >> Overall leasing activity recorded 111,048 in Q1 >> No new projects were delivered to the market in Q1; however, there is currently 1.24 million under construction >> Strong demand illustrated by media, entertainment and technology firms is expected to continue as the economy strengthens CONSTRUCTION No new projects were delivered to the market in Q1; however, Hollywood s development pipeline held with 1,242,600 of office space under construction, which is approximately 30% of all new construction in Los Angeles County. Hudson Pacific Properties, Inc., continued construction on 405,000 of Class A space on the Sunset Bronson Studios lot in Hollywood. Columbia Square, a $300 million mixed use project, is expected to be completed in the second half of 2015. The project consists of a 22 story residential tower, 33,000 of retail, and 330,000 of creative office. J.H. Snyder Company continued construction at 959 Seward St and 1601 N Vine St. In conversion news, Jamison Properties filed permits to convert 2500 Wilshire Blvd and 3345 Wilshire Blvd to residential properties. The process for the two properties totaling 385,447 has not been finalized. activity New leasing activity in dropped with 111,048 compared to 251,760 in Q4 2014, a decrease of 55%. Class A office space generated the majority of new leasing activity in Q1 with 65,397. Among the notable leases was Touchstone Television signing an early renewal of the 30,711 Jimmy Kimmel space at 6834 Hollywood Blvd. The strong demand illustrated by media, entertainment and technology firms is expected to continue as the economy strengthens. The fundamentals in Hollywood have enticed developers to propose new projects and begin construction of new creative office developments. rental rates The weighted average asking rent for direct space increased to $1.92 P. Average asking rents remained highest in the Hollywood submarket ($3.60 P), and lowest in the Mid- Wilshire submarket ($1.67 P). The delivery of new available space in Class A office space will allow Class B buildings to raise their rents. The asking rent in Class A office space in Hollywood is $3.75 P compared to $3.52 in Class B office space. The trend for asking rents in Central Los Angeles is expected to see increases through 2015. Asking rent trends in Mid-Wilshire are expected to remain flat. WEIGHTED AVERAGE ASKING LEASE RATES BY SUBMARKET LEASING ACTIVITY BY SUBMARKET $4.00 $3.50 $3.60 70,000 60,000 63,173 $ P PER ANNUM (FSG) $3.00 $2.50 $2.00 $1.50 $1.00 $1.67 50,000 40,000 30,000 20,000 47,875 $0.50 10,000 $0.00 0 p. 4 Colliers International
market Report OFFICE central LOS ANGELES Outlook The Hollywood submarket is expected to continue to experience strong demand for space from the entertainment, media and technology firms. The lack of large blocks of creative office space in Hollywood is expected to be satisfied by the strong development pipeline of 1.24 million of new space. With the Los Angeles base submarkets all mostly built-out, this gives Hollywood developers the upper hand with being able to deliver new product. 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 Q1 2011 - UNEMPLOYMENT RATE United States, California & Los Angeles County February 2015 4,000,000 350,000 9% 300,000 3,500,000 8% 7% 6.8% 7.8% 250,000 3,000,000 6% 5.8% 200,000 2,500,000 5% 150,000 4% 2,000,000 100,000 3% 1,500,000 50,000 2% 1% 1,000,0000 4Q08 1Q11 4Q09 1Q12 4Q10 1Q13 4Q11 1Q14 4Q121Q15 0% UNITED STATES CALIFORNIA LOS ANGELES COUNTY RECENT TRANSACTIONS & MAJOR DEVELOPMENTS SALES ACTIVITY PROPERTY ADDRESS SIZE SALE PRICE PRICE P BUYER SELLER 1635 N Cahuenga Blvd, Hollywood 34,674 $16,400,000 $473 P Mousebutt Holdings LLC Goldstein Planting Investments LEASING ACTIVITY PROPERTY ADDRESS LEASED LEASE TYPE BLDG TYPE LESSEE LESSOR 6834 Hollywood Blvd, Hollywood 30,711 New A Touchstone Television California Capital EC, LLC MAJOR DEVELOPMENTS PROJECT DEVELOPER SIZE SUBMARKET STATUS ESTIMATED COMPLETION Columbia Square (5 bldgs) Kilroy Realty 461,140 Hollywood Under Construction Q2-Q4 2015 959 Seward St - West/East Bldgs J.H. Snyder Company 247,836 Hollywood Under Construction Q3 2016 Icon at Sunset Bronson Studios (2 bldgs) Hudson Pacific Properties, inc. 405,000 Hollywood Under Construction Q4 2016 1601 N Vine St J.H. Snyder Company 128,624 Hollywood Under Construction Q4 2016 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. Mid-Rise: Buildings with a total of 5 to 13 floors. High-Rise: Buildings with 14 or more floors. 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. 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. 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 ALGERMISSEN, STEPHEN Executive Vice President DWIGHT, TIM Associate MATTESON, CAITLIN Research Director Research Services MUMPER, HANS Executive Managing Director PELLOW, NATHAN Senior Vice President PUTNAM, RICK Managing Director Western Region Capital Markets WONG, CHRISTOPHER Regional Analyst Research Services 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